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BcIMC flags appeal of ag investment, as it buys $625m Glencore Agri stake

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British Columbia Investment Management underlined the appeal to investors of agriculture, even amid wave of hedge fund cash into the sector, as the Canadian group bought a 10% stake in Glencore's ag division.

The institutional investor, better known as bcIMC, unveiling its $624.9m investment in Glencore Agricultural Products, said that the agriculture industry was "critical to supporting rising levels of global prosperity".

BcIMC's purchase represents a marked increase in the group's own exposure to agriculture, centred on its renewable resources fund which, as of the end of March last year, the latest figures available, had Can$1.6bn under management – 1.3% of the group's total portfolio of Can$123.6bn.

And much of the renewable resources fund's assets are held in Canadian timberland, besides farmland holdings.

"Our investment in Glencore Agri provides an excellent opportunity for bcIMC to increase and diversify our exposure within the agricultural space," said Lincoln Webb, the group's senior vice-president, infrastructure and renewable resources.

Sector revival

The comments come as the sector is attracting a fresh wave of interest - albeit largely from shorter-term speculators attracted by commodity returns so far this year which have far exceeded those from bonds and equities.

Hedge fund cash inflows, encouraged by weather worries in Europe, the US and South America, have helped drive an ag rally which this week has taken arabica coffee, corn, cotton and wheat futures to multi-month highs, and soybean and sugar prices to multi-year top

The impact of higher crop prices has yet to become so apparent in a revival in longer-term investments, such as land, with farm values extending retreats in the US, for instance, in the January-to-March period, central bank data show.

Nonetheless, Thursday's deal represents a second success in two months by Glencore in selling a stake in its agriculture business, amid a campaign by the commodities giant to cut its debt levels.

Glencore in April sold a 40% stake in the unit to Canada Pension Plan Investment Board for $2.5bn, a transaction which, like the BcIMC deal, valued the agri business at $6.25bn.

Debt reduction

Glencore, which will retain a majority of Glencore Agri, with a 50.01% stake, said that the business would assume all its own debt, of about $3.6bn, after the closing of the BcIMC transaction.

"It is expected that this financing, currently comprising around $600m of long-term debt and $3bn of short-term debt for financing of working capital, will ultimately be funded by Glencore Agri without recourse to Glencore," the group added.

The proceeds of the stake sales, coupled with some smaller deals, take to $3.2bn the sum raised this year from asset disposals by Glencore, which has a target of $4bn-5bn for 2016.

Glencore, which said it would use funds raised to "reduce net indebtedness", has come under fire from investors over its elevated borrowing levels.

Glencore Agri has proven particularly attractive to Canadian investors thanks to its strong presence in the country, gained with the purchase of grain handler Viterra four years ago.

Glencore shares stood 2.1% lower at 142.65p in morning deals in London, on a weak day for shares.

By Mike Verdin

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