Glasenberg learns vital lesson from shareholders

AFTER a breakfast meeting with a small group of hedge funds in New York last week, Glencore chief executive Ivan Glasenberg concluded that investors could no longer stomach his famously bullish outlook.

The meeting capped two weeks of discussions with shareholders from North America to Europe after the Swiss mining firm and trader reported a 56 percent decline in profit. His plan to trim Glencore’s $30 billion (R414bn) debt by 10 percent by the end of next year was not enough to halt a plunge in the company’s market value, which has more than halved to about £17bn (R360bn) this year.

On Monday, the company announced a strategy to reduce debt much more quickly.

“This is definitely the first time you get the impression that shareholders are the most important voice in the room versus management,” Ben Davis, a mining analyst at Liberum Capital, said.

“Until now, a lot of the market has seen Ivan as the smartest guy in the room.”

The U-turn was unprecedented for the 58-year-old South African billionaire, who has run Glencore almost single- handedly from the sleepy lakeside Swiss city of Zug for a decade-and-a-half.

Glasenberg, Glencore’s second-largest shareholder, was uncharacteristically downbeat during a conference call with analysts. The new plan envisions cutting $10bn of debt through the end of next year, shelving dividends and selling both new shares and assets.

The fresh approach was triggered by the almost universal bearishness on commodity prices that investors expressed in talks, surprising Glencore’s management, a person familiar with the matter said, asking not to be identified because the meetings were private.

Bank of America Merrill Lynch analysts wrote last week that Glencore might have ”limited equity value” under a “doom and gloom scenario” for commodities.

Chief financial officer Steve Kalmin told analysts on Monday that it was clear investors were running “doomsday scenarios” on Glencore’s business.

The new debt-reduction strategy was designed to address “any balance sheet concerns in some of these more drastic downside scenarios”. – Bloomberg