GLNCY Glencore Plc (PK)

By Alex MacDonald 

LONDON--Shares in Glencore PLC rose for a second consecutive day Wednesday, after the commodities giant's latest reassuring of investors that it is tackling its debt issues.

Shares in the Swiss company rose 11% to 89.1 pence following Tuesday's 17% rise, making it the second largest gainer on the U.K's blue chip FTSE 100 index. Meanwhile the FTSE 350 mining index was up 3.1% and the FTSE 100 index was up 2.1%.

Glencore republished a statement first issued Tuesday in which it said: "Our business remains operationally and financially robust--we have positive cash flow, good liquidity and absolutely no solvency issues."

"We are getting on and delivering a suite of measures to reduce our debt levels by up to $10.2 billion," the company added. Glencore announced about three weeks ago $10 billion worth of measures to cut its net debt by a third to around $20 billion by the end of 2016.

Some investors agree that the market's worries are overdone.

Charl Malan, senior metals and mining analyst and portfolio manager at Van Eck Global, a top 20 Glencore shareholder, said the recent share-price rout was an overreaction. Fears about the company's exposure to weak commodity prices from its huge trading operation were also overblown since Glencore hedges much of its risk through counterparty transactions on all trades.

"I don't see why there is a credit or refinancing risk built into this company," he said. "It just feels that [investors] have pushed it a little further than it should have gone," he said.

"There doesn't appear to be any real fundamental change over the last few weeks that warrant the large destruction of market value," said David Herro, deputy chairman and international chief investment officer at U.S.-based asset management firm Harris Associates LP in response to Monday's share price slump. Harris Associates is Glencore's third largest shareholder after CEO Ivan Glasenberg and sovereign-wealth fund Qatar Holding LLC, with just over a 5% stake. Mr. Herro noted Glencore's management has been "quite proactive" in addressing investor concerns.

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.

If the company were to lose its investment-grade credit rating, its access to cash could dry up and its trading arm would have to curtail its activities significantly.

Glencore's shares fell 29% on Monday and are off 70% so far this year, making it the worst performer on the FTSE 100 index. Its shares have fallen more than 80% since its London share listing in 2011.

Some analysts, however, have said the measures may not be enough if commodity prices continue to fall further amid continuing concern about growth in China, the world's largest consumer of industrial commodities like coal, copper and nickel.

Macquarie Group mining analyst Alon Olsha said in a note Wednesday that Glencore needs to announce an additional $4 billion in net debt reduction initiatives to safeguard its investment grade credit rating from downgrade given the continued price rout over the past three weeks.

He noted that there is "scope to make up this shortfall," but if spot prices fall another 5% from current levels, the company would need to cut net debt by another $5 billion, bringing the grand total of net debt reduction initiatives to $19 billion.

The company's corporate broker, Citigroup Inc. on Tuesday recommended that Glencore's management, which owns about 30% of the company's stock, take the company private if investors fail to appropriately value the company's equity.

The bank also highlighted that Glencore could dispose of more assets to raise more cash if need, including selling all of its agricultural trading business, which the bank valued at $10.5 billion.

Glencore previously said it was considering selling a minority stake its agricultural business and had hired Citigroup and Credit Suisse Group AG for that purpose, a person familiar with the matter said.

The cost of insuring $10 million of Glencore's debt against default over a five-year period ballooned nearly 60% to $876,000 annually from Friday to Monday. Since then, it has fallen nearly a quarter to $669,000 annually, according to Markit data, still very high historically, but a sign that investor fears may be starting to ease.

Write to Alex MacDonald at alex.macdonald@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

September 30, 2015 07:07 ET (11:07 GMT)

Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jun 2024 até Jul 2024

Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jul 2023 até Jul 2024