Glencore slumps 30% as debt fears grow

An entrance to the Optimum Kwagga coal mine owned by Glencore is seen near Hendrina in Mpumalanga province, Sept 8 2015.
An entrance to the Optimum Kwagga coal mine owned by Glencore is seen near Hendrina in Mpumalanga province, Sept 8 2015.PHOTO: REUTERS

LONDON (REUTERS) - Glencore shares tumbled more than 30 per cent to an all-time low on Monday on fears that the mining and trading company was not doing enough to rein in its debt to withstand a prolonged fall in global metals prices.

About 3.5 billion pounds (S$7.59 billion) in market value was wiped off the firm, which is in the middle of a drive to sell assets and raise cash to help cut its US$30 billion (S$42.74 billion) debt pile and protect its credit rating after a crunch in prices of its main products, copper and coal.

Swiss-based and London-listed Glencore earlier this month raised US$2.5 billion through a share placement, part of a wider plan to cut its net debt by a third by the end of 2016.

Glencore's top individual shareholders, according to Thomson Reuters Eikon data, include CEO Ivan Glasenberg, with an 8.4 per cent stake, and Qatar Holding, with 8.2 per cent. Qatar is also a top shareholder of German automaker Volkswagen, another beaten-up blue-chip.

Monday's fall spread to the broader UK mining sector, which has also felt the pain from an emerging-markets slowdown and a crash in commodities prices. The FTSE 350 mining index sank to its lowest level since Dec. 2008.

Traders cited a Investec note that raised doubts over Glencore's valuation unless spot metal prices improve. The note pointed to high debt levels and a need for deeper restructuring. "If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate," analysts at Investec wrote.

Both Glencore and Anglo American declined to comment.

Shares of Glencore were down 24 per cent at 73.16 pence at 1323 GMT after falling as much as 31 percent to a record low of 66.67 pence. The stock is down around 75 per cent year-to-date.

The cost of insuring exposure to the debt of Glencore hit record highs, also on concerns the company could not withstand steep fall in metals prices.

Anglo American shares were down 7.7 per cent.

The outlook for China's economy was also a drag on markets, with forecasts pointing to a likely shrinking of the country's giant factory sector for the second month in a row. Profits earned by Chinese industrial companies declined at the sharpest rate in four years in August, according to official data.

Brewin Dolphin analyst Nik Stanojevic said investors were likely pricing in a fresh drop for metals and commodities prices.

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.

Traders warned that the stock might might fall even further if more assets were put on the block. "The market is concerned that there is going to be a fire-sale going on at Glencore," said Beaufort Securities' sales trader Basil Petrides. "I don't think anybody knows where the floor is on the stock at the moment."