GLNCY Glencore Plc (PK)

LONDON—Commodities titan Glencore PLC said Wednesday it has agreed to sell a 40% stake in its agricultural business to Canada's largest pension fund, Canada Pension Plan Investment Board, for $2.5 billion in cash.

The transaction values Glencore's agricultural business at $6.25 billion and is forecast to close in the second half of 2016.

The deal, which was first reported by The Wall Street Journal on Tuesday, is in line with Glencore's aim to raise money from asset sales to help reduce its heavy debt burden after the company's stock price plunged amid a selloff in commodities.

The auction of the stake also attracted interest from sovereign-wealth funds and Asian trading houses, people familiar with the matter have said.

The deal partially unwinds Glencore's 2012 acquisition of Canadian grain handler Viterra Inc., for which it paid roughly $6 billion in a bet that economic growth in China and other emerging economies would fuel food demand.

The bet has been hampered by slowing economic growth in China and Brazil's slumping currency. In January, Canadian fertilizer producer Potash Corp. of Saskatchewan suspended production at one of its mines to counter an oversupplied market.

Glencore is the world's third largest diversified mining company by market value producing an array of commodities including coal, nickel, copper and oil. Its agricultural business focuses on processing, handling and marketing wheat, corn and other grains, oilseeds, cotton and sugar using Glencore's storage and other facilities.

In 2015, Glencore's agricultural-products business generated adjusted earnings before interest and taxes—a measure of operating income—of $524 million, down 47% from the previous year.

For the pension fund, which oversees C$282.6 billion ($214.9 billion) in assets for 18 million Canadians, the investment in Glencore's agriculture business supports its strategy of diversifying its holdings to protect against volatility in a particular region or asset and help ensure a steady source of cash to meet its liabilities. Glencore's agriculture operations are spread across parts of Europe, Canada and South America.

CPPIB first decided to invest in agriculture in 2012, targeting farmland investments in Canada, the U.S., Australia, New Zealand and Brazil. Its existing farmland investments in the U.S. and Canada are valued at C$787 million, according to the pension fund's latest annual report.

CPPIB has previously indicated that the slump in oil and other commodity prices works to its advantage by reducing the price of assets. The long-term nature of the fund's pension liabilities and its large scale make it easier for it to wait for a rebound.

Ben Dummett contributed to this article.

Write to Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

April 06, 2016 04:35 ET (08:35 GMT)

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