Weaker commodity prices and softening Chinese demand have put the brakes on the formerly formidable rise the sector enjoyed over the last decade, but analysts have highlighted that Glencore’s main problem is actually its debt load.
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Glencore’s stock has fallen by more than 85% since the company went public in 2011 at a price of £5.30 a share.
“The risk is if commodities don’t recover then companies like Glencore will be in trouble trying to repay its debt”.
Analysts warned that Glencore’s massive losses Monday were not justified, with several suggesting the mining giant should delist to shield itself from the abuse.
Citigroup said that even with copper at $4,000 a metric ton and other raw-material prices stable, Glencore would post earnings before interest, taxes and amortization of about $7.5 billion.
On Tuesday, Glencore stock rebounded 17 percent when the company issued a statement saying its business remained “operationally and financially robust”.
However, brewer SABMiller fared better, with shares up at fresh six-month highs after a report in the Sunday Times that Anheuser-Busch could bid about $106 billion for the company.
Glencore Plc (LON:GLEN) finally broke the silence since the 30 percent stock crash on Monday with a strongly-worded statement today, dismissing fears that the company is facing an impending crisis.
“If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, almost all the equity value of both Glencore and Anglo American could evaporate, ” research firm Investec said in a note.
Investors are also concerned that Glencore could have its debt rating cut, which would raise the cost of financing its significant commodities trading operations.
Glencore chief executive officer Ivan Glasenberg lost $500m on Tuesday as the mining group tumbled to a new low after analysts questioned the company’s prospects in the face of persistently low commodities prices.
Citi claimed the recent slump in the commodity group’s share price was “overdone” and that management should consider taking it private.
S&P affirmed Glencore’s BBB rating and kept a negative outlook, also citing worries over economic slowdown in China and copper prices.
London-listed Glencore has already raised $2.5 billion through a share placement.
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Glencore (Xetra: A1JAGV – news) management will hold what could be tense talks with debt investors in London this week, as the company seeks to reassure markets that it can weather the current rout that has wiped £8bn off its value this month.
