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Trafigura pledges to cut debt, reduce share buybacks
[LONDON] Swiss commodity trader Trafigura will reduce its "far from perfect" leverage over the next year as it sells some assets and has passed the peak for new investments while also reducing this year's share buybacks, its chief financial officer said.
"We are executing the deleveraging that we outlined previously ... The (debt) ratio is far from perfect but the deleveraging trend is there," Christophe Salmon told Reuters.
Trafigura has high debt levels relative to rival trading houses in terms of the net debt to earnings before interest, tax depreciation and amortisation (Ebitda) metric.
Its 'adjusted total debt' stood at US$8.63 billion at the end of its fiscal year in September 2016 while Ebitda stood at US$1.63 billion, giving a ratio of over five times, which compares with about 1.5 times for rival Glencore.
In the six months ended March 31, 'adjusted total debt' fell to US$7.9 billion while Ebitda rose 12 per cent to US$921.4 million Mr Salmon said 'total adjusted debt' still included some forms of short-term borrowing, including some financing of inventories, and hence the core metric for Trafigura's net debt should be its 'corporate debt', which currently stands at around US$3 billion.
With annual Ebitda of US$1.6-$1.8 billion the corporate debt to Ebitda ratio should be below two times.
"The corporate debt to Ebitda will decrease over the course of the next few quarters," Mr Salmon said.
He also said the firm's 'adjusted total debt' to equity fell to 1.14 times at the end of March from 1.48 times in September 2016 with the group's equity rising to US$6.93 billion from US$5.85 billion.
Trafigura has paid out billions of dollars in share buybacks to its shareholders, including departing founders.
But this year it will reduce buybacks to US$475 million from US$719 million in 2016, US$775 million in 2015 and US$885 million in 2014, Mr Salmon said.
He said the company had yet to buy back the stake of its main founder, Claude Dauphin, who died in 2015.
The company has said it would continue buybacks while recycling the shares back to current employees as former employees sell out, provided it generates enough profits.
"The payout to shareholders will have no impact on the debt ratio," said Mr Salmon.
He also said the firm was working on boosting liquidity.
Earlier this year, it issued a US$600 million perpetual security listed on the Singapore stock exchange with an annual coupon of 6.875 per cent. The bond has no fixed redemption date and carries an option to defer the coupon.
"We will never do an IPO but this perpetual bond shows that large institutional investors believe in our story," said Mr Salmon.
"Given the nature of this bond, you can view it as affordable equity or expensive debt," he added.