US graft, money-laundering probe into Glencore among its woes
THE US corruption and money-laundering probe into Glencore represents the sum of all fears for the world’s largest commodity trader and its billionaire chief executive, Ivan Glasenberg.
The possibility that the Justice Department would add to the dizzying array of regulatory and legal headaches the Swiss company is facing around the globe – from Russia to Africa and South America – has been a major worry for both executives and shareholders for months, sources said.
Those concerns crystallised on Tuesday with the announcement that US investigators have subpoenaed documents related to Glencore’s activities in the Democratic Republic of Congo, Nigeria and Venezuela dating back to 2007, sending the shares tumbling more than 8 percent.
The most obvious risk from the US investigation is a hefty fine or settlement, but the stock plunge, which erased $5 billion (R68.5bn) of market value, far exceeded the largest penalty ever imposed under the Foreign Corrupt Practices Act. That suggests investors have deeper apprehensions, according to Maximilian Hess, a senior political risk analyst at AKE International.
“Glencore was long the business that operated where others could not or would not,” Hess said. “That seems like an untenable position.”
The US hasn’t made any accusations of wrongdoing or specified what’s it’s investigating. Glencore said it’s reviewing the subpoena and will provide further information as appropriate.
Glasenberg in April had to quit the board of one of Glencore’s biggest aluminium suppliers, United Rusal, after its main owner, Oleg Deripaska, was hit with the most punitive US sanctions imposed on a so-called Russian oligarch.
Glencore’s struggles in the DRC, where it operates massive copper and cobalt mines, have also come under legal pressure, including a possible bribery investigation by UK prosecutors over its work with Dan Gertler, an Israeli billionaire and close ally of DRC President Joseph Kabila, people familiar with the situation said in May.
But the US is casting a wider net with the addition of Venezuela and Nigeria to its investigation, increasing the likelihood that Glencore’s management will get bogged down in a lengthy legal process. And any fines or charges that result will only further complicate internal efforts to settle on a successor to the 61-year-old Glasenberg.
Glasenberg has run Glencore since 2002 and is also the company’s second-largest shareholder, according to Bloomberg data. Two of his closest lieutenants are associated with legal challenges in the countries the Justice Department is focusing on.
Glencore curbed the powers of Aristotelis Mistakidis, its head of copper, after a review of operations in Congo raised questions about accounting and management practices. And Alex Beard, Glencore’s head of oil, was named in a 2015 lawsuit filed by a former representative in Nigeria.
Christopher LaFemina, an analyst at Jefferies, said the issue threatens to become a long-term drag on Glencore’s shares, much like the ongoing dispute between rival miner Freeport-McMoRan and the Indonesian government.
“Investors are likely to assume Glencore will have to pay a large fine, and Glencore’s cost of capital will increase due to increased risk in general,” LaFemina said.
Still, analysts at Credit Suisse Group said Glencore shares were undervalued, as it could be years before the conclusion of any probe.
The revelation of the US probe is the latest in a string of headaches that have soured what should have been a triumphant moment for Glasenberg. – African News Agency (ANA)