Glencore shares rally after analysts brand slump an over-reaction

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Glencore has attempted to calm growing concerns about its finances, insisting that it is “operationally and financially robust” despite volatile trading in the commodity group’s shares.

In an unscheduled statement, Glencore said it had “no debt covenants and continues to retain strong lines of credit and secure access to funding”.

The statement drove shares in Glencore up 16% to 79.5p by Tuesday afternoon. On Monday shares in Glencore fell by 29% – one of the biggest-ever daily falls for a FTSE 100 company after analysts at investment bank Investec warned that the value of Glencore could “evaporate” if commodity prices stay at current levels.

Glencore has also won support from analysts at Citi, the bank that helped the company to float in 2011.

Citi claimed the recent slump in the commodity group’s share price was “overdone” and that management should consider taking it private.

Glencore shares are now almost 90% lower than when the company floated in 2011 and have fallen 75% so far this year due to concerns about the Chinese economy, falling commodity prices and the company’s debt levels.

The share price slump means that Glencore’s boss, Ivan Glasenberg – whose stake was valued at around £6bn when the company floated – is no longer a paper billionaire on the basis of his Glencore stake alone.

Glencore said in a statement: “Glencore has taken proactive steps to position our company to withstand current commodity market conditions.

“Our business remains operationally and financially robust – we have positive cash flow, good liquidity and absolutely no solvency issues.”

Citi said the group should still post annual profits of roughly $7.5bn (£4.9bn) even if copper remained at $4,000 a metric tonne and other raw material prices stayed stable.

The analysts said: “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.”

Citi said that Glencore had resources of $12bn to fund the group, including $6.5bn of cash after a $2.5bn share placing this month, which was designed to ease fears about the company’s future.

Glencore backed up Citi’s comments by insisting in its statement that it had access to sufficient funds.

It said: “We are getting on and delivering a suite of measures to reduce our debt levels by up to US$10.2bn.

“Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding ‎ thanks to long term relationships we have with the banks.

“We remain focused on running efficient, low cost and safe operations and are confident the medium and long-term fundamentals of the commodities we produce and market remain strong into the future.”

Analysts at investment bank UBS also said that Glencore shares have been “heavily oversold”, although staff at Jefferies warned that the risks of investing in Glencore are “clearly very high”.

UBS added: “Glencore is now under pressure to strengthen its balance sheet via asset sales or a capital injection, and time is of the essence.”

Powered by Guardian.co.ukThis article was written by Graham Ruddick, for theguardian.com on Tuesday 29th September 2015 15.21 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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