Glencore PLC shares staged a small recovery on Tuesday as a few analysts defended the value of the debt-laden company and suggested it could be taken private. The stock has declined 77 per cent this year, the worst performance in the U.K.’s benchmark FTSE 100 Index. The result is a plummeting share price and news waves of rumours that a few of Glencore’s long-only investors are now looking to “get out at any price”.
Advertisement
Glencore’s Hong Kong-listed shares also fell 28 per cent overnight, while the copper price in London hit the lowest level for a month at $4915 a tonne. To reduce the complex to the brutally simple, Glencore carries $US30 billion of debt against the assets of the business and another $US20 billion that supports the legacy trading operations that once sat at the heart of Glasenberg’s empire. That left it as the combined group’s largest shareholder, just behind the chief executive Ivan Glasenberg, who owns 7.65 per cent of the company. Yet the moves have done little to ease fears over Glencore’s swollen $30 billion debt pile.
Billionaire Glasenberg has said no one can read the Chinese commodity market.
“Even if we assume that the industrial assets continue to produce spot EBITDA margins (at spot commodity prices which are particularly depressed at present, with margins of only around 15%), and no contribution from the marketing business, we still see 93p of value”.
And there’s the rub.
“The risk is if commodities don’t recover then companies like Glencore will be in trouble trying to repay its debt”. This means the market it betting there is a better than one-in-four chance of default at a few point over the next five years. In spite of the figures, several of Glasenberg’s colleagues have had to swallow far more bitter pills since the shares tanked, with Forbes estimating the relegation of Daniel Mate, Aristotelis Mistakidis, Tor Peterson and Alex Beard from the 10-figure club.
Advertisement
“Whilst shareholders generally recognise that the company needed to strengthen its balance sheet, the use of the authority in this manner is a serious and unnecessary breach of the principles [of pre-emption]”. They could make maybe $US4 billion each. He joined buccaneering Marc Rich & Co (Rich was charged with tax evasion and illegal deals with Iran but later pardoned by United States president Bill Clinton), Glencore’s predecessor firm in 1984 where he started as a coal trader.
