Glencore Shares Seesaw in Volatile Trading -- 3rd Update
01 Outubro 2015 - 11:33AM
Dow Jones News
By Alex MacDonald
LONDON-- Glencore PLC shares seesawed in volatile trading
Thursday, first regaining the ground lost earlier this week and
then swinging to a loss as investors continued to digest the
commodity group's efforts to restore confidence in its finances
amid weak commodities prices.
Shares in the Swiss commodities trader and producer rose more
than 8% to an intraday high of 99.17 pence a share for the first
time since Monday's share-price rout, but later fell 3.1% to be at
88.72 pence, while the FTSE 350 mining index was up 1.2%.
Glencore's communications offensive involved repeated messages
to investors on Tuesday and Wednesday that it faced no risk of
insolvency while it pressed ahead with plans to reduce net debt of
nearly $30 billion.
One option that has emerged recently is selling a stake in its
agricultural business, though that would be painful. The
agricultural arm's earnings before interest and taxes last year was
$856 million for Glencore, almost a third of its marketing
division's profit, according to the company's annual report.
Glencore has hired Citigroup Inc. and Credit Suisse Group AG to
sell the business, people familiar with the matter said.
"Glencore has taken proactive steps to position our company to
withstand current commodity-market conditions," the company said in
the statements earlier this week.
Meanwhile, the cost of insuring $10 million of Glencore's debt
against default over a five-year period also continued to fall
Thursday. It is now down about a quarter at $677,000 annually since
Monday, when the price ballooned nearly 60% to $876,000, according
to data from Markit. The latest insurance cost is still high
historically, but suggests that investor fears may be starting to
ease.
The company announced earlier this month it was suspending
future dividend payments, issuing equity and selling assets to
reduce net debt to around $20 billion by the end of 2016.
Despite an initially favorable reaction from investors to the
debt-reduction plan, sentiment turned sour amid continued falls in
raw-materials prices to which Glencore is exposed as a major
producer of coal and base metals as well as one of the world's
biggest commodities traders. More broadly, investors are
increasingly worried about the scale of corporate debt world-wide
as the outlook for earnings growth darkens.
Concerns centered on Glencore's capacity to safeguard its
investment-grade credit rating as commodity prices continue to fall
amid a gloomy outlook for growth in China, the world's biggest
consumer of coal and copper among other natural resources.
Macquarie Group mining analyst Alon Olsha said in a note this week
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
Losing investment-grade status would severely constrain
Glencore's borrowing and its trading arm would have to curtail its
activities significantly.
Glencore's shares are still down around 70% this year, making it
the worst performer out of the U.K.'s FTSE 100 index. They are more
than 80% lower since their listing in London in 2011.
The stock-price plunge has highlighted problems investors see in
Glencore's hybrid business model, combining mining and trading. The
combination was supposed to make Glencore less susceptible to
commodity-price downturns, but the borrowing needed to run a
trading house and sustain its mines during a commodities slump has
alarmed investors.
Prices for the main commodities that drive Glencore's
revenue--copper, coal, zinc and nickel, among others--have all hit
multiyear lows in recent months.
On Thursday the company confirmed more job cuts in South Africa
amid floundering coal prices, the latest in a rash of mining job
losses to hit the country. Glencore spokesman Gugulethu Maqetuka
said 378 employees would be affected by the closure of its South
Witbank mine, with 138 redistributed at other coal operations and
the remaining 240 laid off. About 100 employees are expected to be
affected as the company talks with labor unions about closing its
Witcons coal-processing plant. Glencore also said it is still
considering closing its Eland platinum mine in South Africa because
of falling prices, putting more than 900 jobs at risk.
In a sign of confidence about the company's future, a U.K.
regulatory filing showed that Glencore Chairman Tony Hayward
acquired 100,000 shares in the company for around GBP90,890 (about
$137,507) Wednesday.
Alexandra Wexler in Johannesburg contributed to this
article.
Write to Alex MacDonald at alex.macdonald@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 01, 2015 10:18 ET (14:18 GMT)
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