CEO Ivan Glasenberg still owns just shy of 10% of Glencore, so the lower the price drops, the worse it gets for him.
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Earlier this month, Glencore said it would sell assets, suspend dividends and raise cash from new and existing shareholders in the hope of reducing debt by $10 billion.
Those who are negative about Glencore focus on its heavy debt burden of $30 billion and hold out the prospect that commodity prices could decline further or remain stuck at low levels due to a slowdown in China, the world’s biggest buyer of raw materials.
But the group, which largely deals in metals including copper and aluminium, has been hit particularly badly, with a year-to-date fall of around 71% overall.
Glencore, a mining and trading conglomerate, said it has “absolutely no solvency issues” after its shares plunged 29% on Monday.
Glencore’s net debt to equity ratio has been of particular concern to investors.
“The figures were off in terms of EBITDA and free cash, and unlike Lehmans we have a lot of liquidity, no covenants, and ample lines of funding with banks”.
Glencore backed up Citi’s comments by insisting in its statement that it had access to sufficient funds.
Glencore backed up its London slump with a 28 per cent fall for the company’s Hong Kong-listed shares, leading the Hang Seng index more than 3 per cent lower.
“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”, they said in a note to clients.
Glencore said in a statement: “Glencore has taken proactive steps to position our company to withstand current commodity market conditions”. The stock rose earlier in the day as analysts said the rout probably didn’t reflect the company’s true value and Citigroup wrote management should consider taking the company private.
Augustin Eden at Accendo Markets said opportune buyers were snapping up cheap-looking Glencore shares among others “after yesterday’s sell-off, spurred by a bearish Investec note, was called into question by Credit Suisse this morning”.
“There is value in Glencore shares if the company can pull the appropriate levers now, but risks are clearly very high”, Mr. LaFemina said.
In fact, because Canadian junior mining companies rarely operate mines, it has been assumed by a few observers that Glencore, which already has agreed to purchase PolyMet’s copper, eventually will buy out PolyMet and operate the Minnesota project once it is approved.
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Sentiment toward Glencore PLC, which is headquartered in Switzerland, has been fragile for months as investors fretted over the impact of falling commodity prices on earnings and the company’s ability to meet its debt repayments.
