Glencore (GLEN.L) 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.
Investec upgraded shares of Glencore global PLC, St. Helier (OTCMKTS:GLNCY) from a sell rating to a hold rating in a research report sent to investors on Wednesday, AnalystRatingsNetwork.com reports. That is because Glencore, with almost $30 billion in debt, would need to dedicate excess cash to repaying debt obligations, the analyst said. “If confidence wanes in the ability of highly indebted companies to refinance principal payments, a major crisis can suddenly be precipitated”.
Shares in Vodafone fell 3.6% to 210p, with the United Kingdom blue-chip index down 57 points, or 0.9%, at 6,052.
‘When we run the same analysis using spot commodity prices and spot FX rates, most of Glencore’s credit metrics would be at the border of required ranges to maintain its IG rating, ‘ writes Goldman.
Mr Hillcoat said that despite recent “drastic action” taken by Glencore management, if weak commodity prices continue this may result “in an nearly complete collapse in forward earnings such that no meaningful estimate of shareholder value can be derived”.
It puts further pressure on Glencore, which has already been hit hard by the slump in commodity prices. It was on course for its worst intraday move on record with shares tumbling 75 percent year-to-date and 85 percent since its flotation in 2011.
Adding to these concerns was today’s data, which showed that industrial profits in the country for August declined by $24.59 billion, or 8.8%, year-over-year (YoY).
Brewin Dolphin analyst Nik Stanojevic said investors were likely pricing in a fresh drop for metals and commodities prices.
The company sold a Brazilian nickel operation to Horizonte Minerals for $8 million, a fraction of what Glencore spent for the project, on Monday, Reuters noted.
Heavyweight Vodafone (LON:VOD) is also weighing on the United Kingdom benchmark index with the stock falling after the telco said that talks with Liberty Global regarding possible swaps of assets between the two companies had been terminated.
“I don’t think anybody knows where the floor is on the stock at the moment”. Its shares fell 4.1% to £21.25.
Other factors weighing on Glencore are poor Chinese macroeconomic indicators showing a slowdown in the world’s second-largest economy and concerns that Glencore may struggle to execute its $10 billion worth of measures in a timely fashion and reach its target of reducing net debt by a third to around $20 billion by the end of 2016.