But it then tumbled back into negative territory, extending the week’s losses after suffering a 30% plunge on Monday. The company, run by billionaire Ivan Glasenberg, rose 11% to 88.88 pence, bringing the two-day gain to 30%.
Barclays held a roundtable with Glencore management on Thursday October 1, which the bank said “helped to clear up many misconceptions and confusion” over commodity trading and its associated risks. The core point of the discussions at the meeting was on debt reduction plan and balance sheet.
Concerns centered on Glencore’s capacity to safeguard its investment-grade credit rating unless it took greater measures to cut debt, amid falling commodity prices or prices that remain low for longer given the gloomy outlook for the economy in China, a major consumer of coal, copper and nickel, among other commodities. “Our credit colleagues believe the company can retain its credit rating although the market clearly disagrees with us”, said an analyst at Barclays. The stock has been weighed down by concerns over the company’s $US30 billion debt load and whether the recently announced plan to reduce it by a third was sufficient.
One new option that has emerged is selling a stake in its agricultural business, though that would be painful.
It also hopes to complete a so-called streaming deal by the end of this year. Selling by-products like silver, gold from copper production at an agreed price much before mining will enhance revenues for the company.
In 2014 Glencore employed 181,000 people across 50 countries and generated US$ 224 billion of revenue.
Analysts from bank Investec said this week they saw a scenario under which Glencore would direct all its earnings toward debt repayment.
Losing investment-grade status would severely constrain Glencore’s borrowing and its trading arm would have to curtail its activities significantly. The company said in a statement Tuesday that it has “absolutely no solvency issues”, good liquidity, no debt covenants, strong credit lines and secure access to funding. The forecast of Barclays that Glencore may retain its credit rating also couldn’t boost the investor confidence.
Ultimately, any rating-related costs would be passed on to customers, and in the current low-interest rate environment that move would not necessarily affect the company’s competitiveness, Barclays noted.
Most analysts say that even though they understand Glencore’s mining division, their models are of no use to calculate forward earnings of the trading division as Glencore discloses very little, like private rivals such as Vitol.
The company met debt investors on Wednesday and revealed details of how its secretive trading arm performs.