Glencore assets plunge but hope for bondholders remains

28 Sep 2015 | Author: | No comments yet »

Commodities group Glencore sees share price plunge after warning from investment bank.

Glencore Plc plunged as much as 31 per cent Monday, extending a rout that’s wiped more than US$13 billion off its value this month and highlighting investor concerns that it’s not cutting its debt load quick enough.

Commodity prices have been dented for a variety of reasons, but all have suffered from worries over the scale of the slowdown in China, which has had a voracious appetite for commodities.LONDON – Commodities group Glencore PLC saw its share price plunge by around a third at one point Monday after a warning from an investment bank stoked concerns over the ability of the company to service its sky-high debts — if battered commodity prices don’t recover.

LONDON (Reuters) – Glencore shares tumbled almost 30 percent to close at an all-time low on Monday, on fears that the mining and trading company was not doing enough to rein in its debt to withstand a prolonged fall in global metals prices.Industrial earnings in China, the world’s biggest copper user, tumbled 8.8 percent from a year earlier, with the largest drops in producers of coal, oil and metals, the National Bureau of Statistics said Monday. Chief Executive Officer Ivan Glasenberg’s debt-reduction plan announced three weeks ago and the move to sell a stake in its agricultural business reported by Bloomberg on Friday has failed to stanch the bleeding. About 3.5 billion pounds in market value was wiped off the firm, which is in the middle of a drive to sell assets and raise cash to help cut its $30 billion (£20 billion) debt pile and protect its credit rating after a crunch in prices of its main products, copper and coal.

Glencore Plc, the Swiss commodities trader and miner, sank to a record low after Investec Plc warned that there was little value for shareholders should weakness in commodity prices persist. “We continue to use the Chinese economic malaise as a barometer for copper demand moving forward,” David Meger, the director of metals trading at High Ridge Futures in Chicago, said in a telephone interview. “Ongoing demand concerns continues to be a drag in the copper market.” Copper futures for December delivery on the Comex dropped 1.7 percent to $2.245 a pound at 10:37 a.m. in New York. Investec analyst Hunter Hillcoat warned that Glencore could end up in the situation where it’s “solely working to repay debt obligations” if commodity prices don’t recover.

Sentiment toward Glencore, which is based in Switzerland but has a share listing in London, has been fragile for months as investors have fretted over the impact of lower commodity prices on earnings and the company’s ability to meet its debt repayments. Swiss-based and London-listed Glencore earlier this month raised $2.5 billion through a share placement, part of a wider plan to cut its net debt by a third by the end of 2016. Glencore’s top individual shareholders, according to Thomson Reuters Eikon data, include CEO Ivan Glasenberg, with an 8.4 percent stake, and Qatar Holding, with 8.2 percent.

The company has sold new stock and scrapped its dividend as part of the US$10 billion debt-reduction program as China’s economic slowdown hurt demand for commodities. Glencore’s fall from grace has gathered pace ever since it floated in 2011 at a share price of 530 pence, a listing that valued the company at a little less than 40 billion pounds ($60 billion). Monday’s fall spread to the broader UK mining sector, which has also felt the pain from an emerging-markets slowdown and a crash in commodities prices. The stock slumped more than 16 per cent for the second time in a week and has declined 75 per cent this year, the worst performance in the U.K.’s benchmark FTSE 100 Index.

Miners — not just Glencore — sought to take advantage of China’s booming economy at the turn of the decade when many of the world’s leading economies were struggling to emerge from the global financial crisis and the ensuing recession. Glencore’s 1.25 billion euros (US$1.4 billion) of 1.25 per cent bonds maturing March 2021 fell 9.6 cents on the euro to 71 cents, the lowest since the securities were issued in March, according to data compiled by Bloomberg. The note pointed to high debt levels and a need for deeper restructuring. “If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate,” analysts at Investec wrote. News that Glencore had sold a nickel project in Brazil to Horizonte Minerals for $8 million offered little respite, with Hobart Capital Markets’ Justin Haque saying the price was a fraction of what Glencore had spent. After Glencore announced its debt-cutting plans, Moody’s credit-rating agency affirmed its Baa2 rating on the company but changed the outlook to negative, from stable, “to reflect the scope for a prolonged difficult market that may cause a slower recovery in Glencore’s financial profile”.

Goldman Sachs said that should commodity prices fall another 5 per cent, the metrics needed to maintain Glencore’s credit rating would be out of the required range. Standard & Poor’s has reduced its outlook on Glencore’s BBB level to negative, saying China’s slowing economy will continue to weigh on copper and aluminum prices, which are near six-year lows.

Here you can write a commentary on the recording "Glencore assets plunge but hope for bondholders remains".

* Required fields
All the reviews are moderated.
Our partners
Follow us
Contact us
Our contacts

About this site