Tuesday 27 September 2016

Glencore still 'financially robust' after shares dive

Olivia Kumwenda-Mtambo and Lionel Laurent

Published 30/09/2015 | 02:30

Ivan Glasenberg, chief executive officer of Glencore International Plc
Ivan Glasenberg, chief executive officer of Glencore International Plc

Glencore said yesterday it was strong enough to ride out current volatility in commodity markets which helped to lift the mining group's shares by a fifth.

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Glencore's stock rebounded after a fall of 30pc to a record low on Monday in response to uncertainty over its ability to cope with a prolonged fall in global metal prices. Its shares were up 16pc at 79.43 pence in late trading in London yesterday.

The Swiss-based metals trading and investment company said its business remained operationally and financially robust and it was confident in the medium- and long-term fundamentals of its commodities, which include copper and coal.

"We have positive cash-flow, good liquidity and absolutely no solvency issues," a spokesman said in a statement.

"Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding."

The shares had plunged on Monday, wiping about £3.5bn (€4.75bn) from Glencore's market value on fears the group was not doing enough to cut its $30bn (€26.7bn) debt pile as commodity prices tumbled.

Chief executive Ivan Glasenberg had to bow to shareholder pressure this month by agreeing to cut Glencore's debts and protect its credit rating after the prices of its main products fell. Glencore plans to suspend dividends, sell assets and raise cash, among other measures, to cut its net debt by a third by the end of 2016. The group has already raised $2.5bn through a share placement.

The company's $10bn share listing in London in 2011 turned its managers into billionaires. Now there is speculation it might make sense for Glencore management to take the company private.

Analysts at Citi have said Glencore should consider going private via a management buyout. Such a move would make it easier to restructure while metals prices are slumping and could allow various assets to be spun off.

"In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly," Citi analysts wrote in a note to clients.

But mining industry bankers said it would be virtually impossible for management to put together the required financing for any buyout.

"How, in a market where everyone thinks it has too much leverage, would you put leverage on it?" one senior banker said.

Instead, the company is expected to step up its divestment plans beyond those already announced earlier this month, one banking source said, adding that while other options like a company split or a buyout of the trading business were possible, they were unlikely.

Three Glencore executives are among the firm's top ten shareholders, including Mr Glasenberg with an 8.42pc stake, according to Thomson Reuters data. Just two weeks ago, management took up 22pc of the new shares being issued at 125 pence each. The stock has fallen more than a third since then.

Glencore has been holding talks with talks with investor trade body Investment Association related to its $2.5bn equity placing, Sky News reported.

It was among investors that criticised how Glencore had raised the money, saying it breached shareholder protection principles. (Reuters)

Irish Independent

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