Glencore rallies as Citi suggests group should go private

Another prominent bear, Goldman Sachs, said last week in a note that Glencore had failed to do enough to reassure investors about cutting its debt pile.

Glencore Plc, the commodities group that’s lost nearly $50 billion in market value this year, rallied in London as analysts said the rout probably didn’t reflect its true value and Citigroup Inc. wrote the management should consider taking the company private.

“Our business remains operationally and financially robust – we have positive cash flow, good liquidity and absolutely no solvency issues”, the company, headquartered in the canton of Zug, said in a statement.

Chief Executive Ivan Glasenberg had to bow to shareholder pressure this month by agreeing to cut Glencore’s debts and protect its credit rating after the prices of its main products fell.

Glencore backed up its London slump with a 28 per cent fall for the company’s Hong Kong-listed shares, leading the Hang Seng index more than 3 per cent lower.

When Glencore announced its acquisition of Xstrata, the value of the combined companies was estimated to be north of $70 billion.

Also, latest Chinese data revealed that profits of Chinese companies fell at the sharpest rate in four years in August on rising costs and lower product prices.

That proposition prompted a savage sell-off of Glencore shares, which closed down 29 percent at 69 pence in London, slightly higher than the all-time low of 67 pence recorded earlier in the day, according to financial information provider FactSet.

“Fears that China’s economic slowdown will continue to weigh heavily on metal prices going forward and that the commodities super-cycle is very much dead in the water will leave those invested in the sector feeling the pain for quite a few time”, says Tahmina Mannan, market and industry content editor at FE Trustnet.

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”. China is the world’s biggest consumer of commodities.

Glencore had been subject to bearish assessments from analysts in recent days.

News that Glencore had sold a nickel project in Brazil to Horizonte Minerals for $8 million offered little respite, with Hobart Capital Markets’ Justin Haque saying the price was a fraction of what Glencore had spent.

“If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, almost all the equity value of both Glencore and Anglo American could evaporate”.

Glencore is getting hammered yesterday as investors were getting out of this trade.

The fall followed publication of a note by analysts at investment bank Investec which raised doubts about Glencore’s valuation if spot metal prices do not improve.