HEDGE FUND PARANOIA STALKS GLENCORE

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