Financial Mail - Investors Monthly - - Opinion -

When Ivan Glasen­berg, CEO of the once-in­vul­ner­a­ble global com­modi­ties trad­ing gi­ant Glen­core, is so rat­tled that he is moved to blame hedge funds for his cur­rent woes, you know there must be many more CEOs out there wring­ing their hands.

Glen­core, headed by the in­tensely pri­vate 58-year-old Glasen­berg, listed in Lon­don in 2011 and was im­me­di­ately cat­a­pulted into the FTSE 100. Two years later, Glen­core listed on the JSE.

It’s been a rick­ety ride — and Au­gust, per­haps, was its nadir.

First, in SA, min­ing min­is­ter Ngoako Ra­matl­hodi scared the day­lights out of just about ev­ery mine still brave enough to op­er­ate by sus­pend­ing the li­cence for Glen­core’s Op­ti­mum coal mine. Days later, Ra­matl­hodi back­tracked and re­in­stated it.

Then a week later, Glasen­berg un­veiled hor­ren­dous half-year re­sults which trig­gered a 9,4% plunge in its price on the Lon­don Stock Ex­change and a 7,5% drop on the JSE. Over­all, net in­come for the first half dropped by 56% to $882m.

The stock plunge was ar­rest­ing. When it comes to the LSE list­ing alone, this means that since it went public, Glen­core has lost two-thirds of its value, fall­ing from 530p per share to 159,5p. In SA, the plunge is less dra­matic — down 42%, prob­a­bly soft­ened partly by the col­lapse in the rand.

To put this amount of value de­struc­tion in another light, the Fi­nan­cial Times pointed out that this stock plunge has ef­fec­tively wiped out the whole mar­ket value of the deal Glasen­berg clinched in 2013 — the pur­chase of Xs­trata.

But what was in­ter­est­ing was Glasen­berg’s as­ser­tion that the cul­prits this time were hedge funds which had been ag­gres­sively tar­get­ing Glen­core be­cause they didn't “un­der­stand” it. Equally, the com­modi­ties rout it­self, he ar­gued, was largely the fault of spec­u­la­tors.

“The ac­tual phys­i­cal flows, the in­ven­tory lev­els, are not jus­ti­fy­ing the prices where they are to­day,” he said on a con­fer­ence call, ac­cord­ing to Bloomberg. “It’s hedge funds, it’s Chi­nese hedge funds, it’s US hedge funds. They’re all just hit­ting the com­modi­ties at the mo­ment.” But is that right? As the Fi­nan­cial Times pointed out, less than 2% of Glen­core’s stock is out on loan and sub­ject to be­ing shorted. Sure, the emer­gence of global hedge fund Harris As­so­ci­ates as an in­vestor in Glen­core in re­cent days will have spooked Glasen­berg — es­pe­cially given Harris’s rep­u­ta­tion as an ac­tivist in­vestor not shy of tak­ing on man­age­ment.

But you also have to ask whether the share price drop is less about ve­nal hedge fund man­agers with an eye on next Fri­day’s mar­gin call, and more about Glen­core it­self.

An­a­lysts are wor­ried about its debt and, as much as they re­spect Glasen­berg as the fiery worka­holic deal­maker ex­traor­di­naire, they’re wor­ried about Glen­core’s place in the burst com­modi­ties bub­ble. For many years, Glen­core traded with some­thing of a “Glasen­berg” pre­mium on the share. The com­modi­ties rout has punc­tured this myth.

It has also taken a toll on Glasen­berg’s per­sonal wealth. When it listed four years ago, his stake in Glen­core was worth $10bn; to­day, his 8,4% is worth less than $2bn.

The or­deal has made Glasen­berg the ice­man into a far more hu­man fig­ure. But it may also bring out the best in him. If he’s right, and the mar­ket has been pric­ing in too high a dis­count, then those who stuck with him stand to gain hand­somely.

An­a­lysts are wor­ried about … Glen­core’s place in the cen­tre of the burst com­modi­ties bub­ble

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