Glencore share price slumps after investment bank warning

The company has been hurt by a China-led slowdown that’s hit prices for commodities, heightening investor concern about its debt.

“Glencore is now under pressure to strengthen its balance sheet via asset sales or a capital injection, and time is of the essence”, Jefferies Group LLC said in a report on Tuesday.

The statement drove shares in Glencore up 16% to 79.5p by Tuesday afternoon.

If the stock market doesn’t stop hammering Glencore Plc shares, Chief Executive Officer Ivan Glasenberg should take the company private, according to analysts at Citigroup Inc.

The FTSE 100 giant had to issue a statement saying it was “operationally and financially robust” with a “positive cash flow, good liquidity and no solvency issues”.

‘Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding ‎ thanks to long term relationships we have with the banks.

Glencore’s stock rebounded after a fall of 30 percent to a record low on Monday in response to uncertainty over its ability to cope with a prolonged fall in global metal prices.

Commodity prices, meanwhile, have dropped sharply in recent months.

Earlier this month Glencore attempted to reassure investors that it was on top of its finances by announcing a $10.2bn plan to cut its debt pile by about a third. Analysts have said it may not be enough.

Investec analysts Hunter Hillcoat and Marc Elliot released notes stating Glencore would offer marginal value to shareholders, if the ongoing low commodities prices continue.

Speaking to the BBC, Investec’s Laura Lambie said: “Miners grew hugely to meet the demand from China and they borrowed heavily to find it and the cost of servicing that debt and the schedule of repayments are really putting companies such as Glencore under the spotlight”.

Glencore declined to comment on the plunge.

This week Glencore’s share price fell to 82.5 per cent below what it was back when the merger took place in May 2013 – a loss of approximately $33 billion. The company is now weighed down by over US$30 billion of net debt (total debt less cash and the value of the commodities it holds for trading purposes) following is purchase of Xstrata in 2012, while its market capitalisation has fallen to about US$15 billion.

The collapse highlighted problems investors see in Glencore’s business model, which combines a massive trading division that buys and sells commodities with a mining arm that produces those materials. Doing so, they added, would allow the management to undertake restructuring measures “easily and quickly” and to prepare for an eventual float of the industrial business.