Glencore's Unforgettable Week Ended Right Back Where It Started

Is This Glencore's Lehman Moment?
  • Market now `completely comfortable' with Glencore: Investec
  • Stock ended the week with a 2.3% drop and historic volatility

One of the biggest weeks in Glencore Plc’s history will be recorded as one that looked ordinary.

The shares ended with a 2.3 percent loss for the week, a tiny move for the company that’s lost $44 billion in market value this year. The stock endured record swings, plummeting 29 percent on Monday only to claw back most of the decline as Glencore worked to soothe investor concerns about the company’s solvency.

While questions remain about how Glencore can be profitable if commodity prices continue tumbling, the frantic worries over whether it will collapse under a $30 billion debt pile seem to have eased. The company released a statement on Tuesday saying its business is “robust” and it has secure access to funding. Analysts including Citigroup Inc. called the stock selloff unjustified and recommended buying the shares.

“It was a massive move on Monday, but Glencore has proved that it is bigger than that,” Rene Hochreiter, an analyst at Noah Capital Markets (Pty) Ltd., said by phone from Cape Town on Friday. “It has huge assets under its control. It is doing all the right things, and doing so much faster than other mining companies.”

Glencore is in the middle of a restructuring to withstand lower commodity prices and bolster its finances. It has stopped paying a dividend, sold $2.5 billion in new shares and is in the process of selling assets, such as a stake in its agriculture unit and future gold and silver production, according to people familiar with the matter.

The stock climbed on Friday after Bloomberg News reported Singapore’s sovereign wealth fund, Mitsui & Co. and at least one Canadian pension fund have expressed interest in buying a minority stake in the agriculture business, said two people familiar with the conversations who asked to not be identified because the matter is confidential.

As Glencore’s stock started rebounding, Chief Executive Officer Ivan Glasenberg told staff that the company “will emerge even stronger" and its plan to curb debt is sufficient, according to a Sept. 29 memo e-mailed to staff and seen by Bloomberg News.

“We are materially cash-generative at current spot commodity prices,” Glasenberg wrote in the memo.

CDS Stress

The assurances tempered worries that led sellers of insurance on Glencore’s debt to demand payment up front for the first time. During Monday’s selloff, the company watched its bonds plunge below investment-grade levels as credit-default swaps gave it a better than 50 percent chance of default.

Some pointed to a note by Investec Plc as the trigger behind the declines. The South African bank had published a provocative note in which analyst Marc Elliott suggested the company could see its equity all but vanish if commodity prices stayed weak. While the shares have largely recovered, the company’s credit-default swaps still show signs of stress.

“Time will tell,” wrote Investec analysts including Elliott in a Friday report. “Clearly the market is now completely comfortable with the re-assurances given by Glencore and its high levels of debt are no longer a problem.”

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.

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