‘Overdone’ By Tuesday afternoon Glencore had put together a statement in which it assured the market its business “remains operationally and financially robust” with “no solvency issues”.
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“Given these factors, we believe Glencore is not at risk of a cash call from lenders, nor is it under pressure to liquidate trading inventory”, the analyst said in a note to clients.
Glencore Plc, the commodities group that’s lost nearly US$50 billion in market value this year, rallied in London as analysts said the rout probably didn’t reflect its true value and Citigroup Inc wrote the management should consider taking the company private.
“The Swiss mining goliath said it was making progress on a range of drastic moves announced at the beginning of the month aimed to cut its $30-billion debt by a third”.
As mining normally generates three-quarters of Glencore’s earnings, trading was mostly ignored by the market after Glencore’s record US$10 billion share placement in 2011. “Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding”, the firm said in today’s statement.
But as prices crashed, the company was forced to use much of its cash to repay debt, leaving little for shareholders. As of Monday, the CEO is worth $1.4 billion, compared to $1.9 billion he had on Friday.
Glencore’s shares have taken a hit from investor concerns that the miner may struggle to safeguard its credit rating from a potential downgrade given its heavy debt burden-among the highest in the industry-and expectations that commodity prices may fall further or remain low for longer.
Analysts warn Glencore could face “severe problems” if it doesn’t cut its debt and commodity prices don’t recover.
Doing so, they added, would allow the management to undertake restructuring measures “easily and quickly” and to prepare for an eventual float of the industrial business. “Lack of signaling creates lack of information, which is causing a huge amount of uncertainty in Glencore, which is having a massive contagion effect right across the world”.
This was compounded by an increasingly shaky economic outlook for top commodities consumer China and lower copper prices – Glencore’s largest earner.
“In the future Glencore will only have more difficulties in surviving and a lot of people doubt they can pay off their debts”, he said, explaining that their businesses were capital intensive.
At 10.07am, Glencore’s shares were up 6.15% on the JSE at R17.60, valuing the company at about R242bn.
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Glencore, formerly Glencore Xstrata, is a natural resources giant operating in three segments: metals and minerals, energy products and agricultural products with over 150 mining and metallurgical facilities, offshore oil production facilities, farms and agricultural facilities spread across the globe.
