The very ordinary week that really wasn’t one

ONE OF THE biggest weeks in Glencore’s history will be recorded as one that looked ordinary.

The shares ended with a 2.3 percent loss for the week, a tiny move for the company that has lost $44 billion (R603.62bn) in market value this year. The stock endured record swings, plummeting 29 percent on Monday only to claw back most of the decline as Glencore worked to soothe investor concerns about the company’s solvency.

While questions remain about how Glencore can be profitable if commodity prices continue tumbling, the frantic worries over whether it will collapse under a $30bn debt pile seem to have eased. The company released a statement on Tuesday saying its business was “robust” and it had secure access to funding. Analysts, including Citigroup, called the stock sell-off unjustified and recommended buying the shares.

“It was a massive move on Monday, but Glencore has proved that it is bigger than that,” Rene Hochreiter, an analyst at Noah Capital Markets, said in Cape Town on Friday. “It has huge assets under its control. It is doing all the right things, and doing (them) so much faster than other mining companies.”

Glencore is in the middle of a restructuring to withstand lower commodity prices and bolster its finances. It has stopped paying a dividend, sold $2.5bn in new shares and is in the process of selling assets, such as a stake in its agriculture unit and future gold and silver production, according to people familiar with the matter.

The stock climbed on Friday after Bloomberg News reported Singapore’s sovereign wealth fund, Mitsui & Company and at least one Canadian pension fund have expressed interest in buying a minority stake in the agriculture business.

As Glencore’s stock started rebounding, chief executive Ivan Glasenberg told staff that the company “will emerge even stronger” and its plan to curb debt was sufficient, according to a September 29 memo. The assurances tempered worries that led sellers of insurance on Glencore’s debt to demand payment up front for the first time. During Monday’s sell-off, the company watched its bonds plunge below investment-grade levels as credit default swops gave it a better than 50 percent chance of default.

Some pointed to a note by Investec as the trigger behind the declines. The South African bank had published a provocative note in which analyst Marc Elliott suggested the company could see its equity all but vanish if commodity prices stayed weak. While the shares have largely recovered, the company’s credit default swops still show signs of stress. – Bloomberg