LONDON • Glencore will buy back as much as US$1 billion (S$1.36 billion) of its shares, a move that may soothe investor concerns after the world's top commodity trader was hit by a US Department of Justice (DOJ) probe earlier this week.
The buyback programme started yesterday and will last through the year-end, the company said in a statement. Glencore shares rose as much as 4.7 per cent on Wednesday, the most since April.
The Glencore announcement came two days after the US authorities demanded documents relating to possible corruption and money laundering regarding Glencore's business in Nigeria, the Democratic Republic of Congo and Venezuela over the past decade. That wiped about US$5 billion off Glencore's market value on Tuesday. The stock is down 15 per cent this year, while other mining majors like BHP Billiton, Rio Tinto and Anglo American have gained.
Glencore has faced challenges linked to its business in the Congo, where it operates giant copper and cobalt mines. It is also facing the possibility of a bribery investigation by British prosecutors over its work with Israeli billionaire Dan Gertler, a close friend of Congo President Joseph Kabila, people familiar with the matter have said.
The share buyback "does not seem a coincidence and, in our view, suggests management also believes the recent price moves are extreme", Barclays said yesterday.
Glencore said on Tuesday that it is reviewing the DOJ subpoena and will provide further information as appropriate.
Glencore has been less focused on returning cash to its shareholders than some of its biggest mining peers, instead choosing to hoard funds for potential deals. Yesterday's announcement, along with a bigger-than-expected 2017 dividend, will help allay those concerns for investors keen to see returns.
"A concern for some investors has been that this cash will never be returned to shareholders and instead be re-channelled into perpetual growth and M&A," Credit Suisse said. The announcement "shows in itself this is not true".
Glencore surprised the market with a US$2.9 billion dividend earlier this year, while larger rival Rio Tinto promised a US$5.2 billion payout, with an additional US$1 billion share buyback. Anglo American has also increased investor payouts.
The first part of Glencore's buyback will total as much as £350 million (S$633 million) and end by Aug 7, and any ordinary shares purchased will be held in treasury, it said. Citigroup will conduct the programme.