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Published: Mon, October 12, 2015
Economy | By Melissa Porter

Glencore share price slumps after investment bank warning

Glencore share price slumps after investment bank warning

Glencore slumped more than 15 percent to a new all-time low after a bearish note from broker Investec that raised doubts over the mining and commodities company's valuation and high debt levels. "If it was to unravel, that could have a global impact", says U.S. Global Investors CEO Frank Holmes.

"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 Plc. (LON: GLEN) shares tanked Monday after investment management firm Investec warned that weak commodity prices could lead to the firm's equity value being "eliminated". A number of analysts challenged Investec's note.

The new shares make up about 9.99% of the company's issued ordinary share capital before the placing.

The commodity price rout and concerns over a slowdown in the Chinese economy have helped send Glencore shares around 70 per cent lower this year - making it the worst performer on Britain's FTSE 100.

Bernard Aw, a strategist at IG Asia Pte in Singapore, said: "Glencore's fall was significant due to its prominence and size, and the plummet was in part triggered by perceived inadequacy in efforts to reduce its debt amid deteriorating mining prospects".

Glencore's top individual shareholders Eikon data include Glasenberg, with an 8.4% stake, and Qatar Holding, with 8.2%.

The dive in share prices yesterday was accelerated by latest analysts' reports that the value of the commodities giant could "evaporate".

The collapse highlighted problems investors see in Glencore's business model, which combines a massive trading division that buys and sells commodities with a mining arm that produces those materials.

"The market is concerned that there is going to be a fire-sale going on at Glencore", said Beaufort Securities' sales trader Basil Petrides.

"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", it said. Copper, which is used in electronics and which Glencore is particularly exposed to, is trading near six-year lows.

 

"Glencore has taken proactive steps to position our company to withstand current commodity market conditions", the company said. "Investors are not yet convinced that Glencore has gone far enough to totally allay fears that the industrial assets can service the new lower debt level", they said.

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