Glencore In Peace Talks Over $2.5bn Cash Call

Glencore has been at the eye of the storm over its exposure to a slowing Chinese economy and its $29.5 billion (£19.5 billion) debt pile, which the Swiss-based company has been forced by shareholders to slice with a series of self-help measures to raise $10 billion.

In an unscheduled statement, Glencore said it had “no debt covenants and continues to retain strong lines of credit and secure access to funding”.

It’s safe to say the nearly 30% plunge in Glencore’s shares to a record low on Monday has laid to rest any hope that the mining and trading company had of pulling off a merger deal with Rio Tinto, which is vying with Brazil’s Vale for the title of the world’s largest iron ore producer. This included suspending future dividend payments, issuing $2.5 billion equity and selling $2 billion worth of assets.

The company’s shares have fallen three quarters since the beginning of the year, making it the worst performer in the FTSE 100 index this year. Citi is a co-broker of the sale and said that “the level of interest is likely to be high”.

A downgrade of Glencore’s credit rating to sub-investment standard is unlikely, Citigroup said.

Citi was not the only brokerage to voice support for Glencore following yesterday’s debacle.

Analysts at investment bank UBS also said that Glencore shares have been “heavily oversold”, although staff at Jefferies warned that the risks of investing in Glencore are “clearly very high”.

“The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve”, Investec said in a note.

What makes more sense is to cherry-pick parts of distressed companies, especially if you have the view that the price of the commodity being produced has a solid longer-term outlook.

“The argument is that these things create simpler structures where management can better focus on delivering value in the separate businesses”, said Andrew Driscoll, global head resources analysis for CLSA. “And this assumes that commodity prices never recover from their now depressed state!”

Shares for Glencore are down almost 90 percent since the company’s listing in 2011, and Glasenberg’s fortune are following suit.

Glencore’s fate rests firmly with the hedge funds that have made such a lot of money shorting the stock for a year or so and so far Glasenberg has been unable to offer the market the quality of response that might loosen that death-grip.