Glencore still faces questions after £1.6bn capital raising

Glencore has finally ‘pressed the button’ on a plan, announced earlier this month, to raise $2.5bn (£1.6bn) through the issuance of new shares as part of an attempt to reduce its substantial debt pile.

The move is one of a range of measures, alongside selling assets, cancelling dividends and shutting mines, to cut its $30bn worth of borrowings – considered excessive by some – by around a third and bring a measure of control amid falling commodity prices.

Equity was raised via an 'accelerated book-build' – essentially private offerings that avoid a lengthy and costly public offer – and saw the company's management contribute hundreds of millions to maintain their combined 22 per cent stake.

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At first the move from the miner and commodities trader, which Bloomberg notes has been the worst performer on the FTSE-100 index this year, was warmly received by investors, who traded the stock up as much as 4.7 per cent from the 125p offer price and well above the record low of 118p reached on Tuesday.

But momentum ran out at it was virtually flat for the day at around lunchtime. Rob Clifford, an analyst at Deutsche Bank AG in London said that while the combined moves would help to alleviate immediate balance sheet concerns, they "do not provide longer-term equity investors with any confidence on the equity story for the company".

Writing in The Guardian, Nils Pratley agreed there continuing questions over the group, which is seen as vulnerable to further falls in commodity prices that show "no hint (yet) of reaching a trough".

It is also now faced with having to rebuild its once-revered "reputation for reading the market", after it bought back shares at 300p last year in a display of "over-optimism" and even last month said it would at all costs hold its interim dividend, says Pratley.

Clifford said the company has to rebuild from scratch a compelling narrative that will give confidence it can rebuild its fundamental value amid wider market turmoil: "The key task for the management team in our view is to rebuild the equity story post the significant under-performance, dilution and dividend cut."

Glencore aims to placate investors with $10bn debt reduction

07 September

Glencore has given in to investors who have been selling the stock heavily amid concerns over its massive debt pile, announcing plans to cut dividends and spending and raise billions in new capital to cut borrowing by around $10bn (£6.6bn).

Shares in the mining and commodities trading giant surged by more than 12 per cent at one point on Monday morning, after the company said that it would make its balance sheet "bullet proof", the Financial Times reports. It had previously said that it was "comfortable" with plans to reduce its $30bn debt pile by just $3bn.

Glencore's new plan involves:

• pulling its full-year dividend for 2015 and next year's interim dividend, saving a combined $2.4bn
• reducing expenditure by as much as $2.5bn by cutting working capital and industrial spending
• selling around $2bn worth of assets including its stake in an agricultural investment business
• raising $2.5bn in a fundraising backed 22 per cent by senior managers.

It is also ending production at copper mines in the Democratic Republic of Congo and Zambia, which will remove 400,000 tonnes of production from the market and, the company hopes, help to prop up plummeting prices.

The moves echo precisely the action demanded by some analysts and investors. JPMorgan Cazenove analysts told Reuters in the wake of a fresh downgrade to the company's outlook from ratings agency Standard & Poor's last week that Glencore was still "over-leveraged at about 3.5 times" and that it would need to cut dividends and shave costs to reduce debt.

Some funds signalled the latest slump to a new record low of 123p last week – it listed at 530p in 2011 – was making the stock a bargain buy. Based on that valuation it trades at 7.3 times its 12-month forward earnings, compared to 12.7 times for the wider index. The negative outlook means this measure could "dramatically change", however, and most were waiting for "clarity about its dividend policy and capex plans before jumping back in".

Glencore shares had eased back to 126p by Monday mid-morning, a gain of 2.6 per cent for the day.

Fresh blow - and a new record low - for Glencore

03 September

Embattled mining and commodities trading group Glencore has suffered a new blow after one of the largest US ratings agencies downgraded its stock outlook after it had already plummeted to a new record low.

On Wednesday the firm closed down eight per cent for the second day in a row to settle at less than 123p. The Times says the latest decline was the result of concern among traders that it may need to raise as much as $16bn (£10.5bn) to keep its massive debt pile to less than two times its earnings, which is still a high level compared to sector peers.

Such an undertaking would represent a huge capital raising: at its last closing price its entire market capitalisation stood at a little more than £16bn.

That figure came from a report from Bank of America Merrill Lynch, which also warned that its "worst case scenario" for currently plummeting metal prices, on which Glencore's value ultimately depends, was a further 33 per cent fall that would effectively render the company "worthless".

Soon afterwards came a report from Standard & Poor's that, as the Financial Times explains, downgraded Glencore's stock outlook to negative after it lowered price expectations for a handful of metals including aluminium and copper, to which Glencore is particularly exposed. The agency did maintain Glencore's current debt ratings, but warned a further sizable fall in commodity prices could lead to a downgrade here as well.

In spite of the flood of negative news, however, Glencore was up four per cent on Thursday lunchtime at around 128p. Investors are clearly eyeing a buying opportunity after a 13.5 per cent fall this week alone, with the stock 75 per cent below its 530p peak.

Some may also be acting on the advice of Canaccord Genuity, which according to Interactive Investor upgraded its rating to a "speculative buy" earlier this week on the grounds that concern over its debts are overdone and the selloff "excessive and unwarranted".

Glencore: from 'millionaire factory' to FTSE backmarker

19 August

Glencore was dubbed the "millionaire factory" at the time of its 2011 listing, then the largest in the FTSE 100's history, but it is the index's worst performer this year and is languishing at a record low after its latest warning over profits.

The Financial Times reports that the Swiss-based mining and trading giant has been hit hard by tumbling commodities prices in recent months and the company has revealed that net income fell 56 per cent to $882m (£563m) for the first half of 2015, with revenues down to $86.9bn against $115.6bn a year ago.

Shares were down around nine per cent at lunchtime on Wednesday to all-time lows of around 160p. The FT notes they have fallen 45 per cent this year, outpacing a mining sector fall of around 35 per cent and making the company the worst performer in the FTSE 100. It is now down more than 70 per cent from the 530p at which it listed in 2011.

So what has gone wrong? The current slide is the result of a prolonged commodities rout that has seen the oil price halve in the past year and all metals take a sizeable hit, while investors are also wary of slowing growth in China. But in truth Glencore's problems have been mounting for some time.

An audacious $60bn merger with miner Xstrata in 2012 was designed to help the company ride out cycles in its trading business, says The Independent, but in fact it left Glencore much more exposed and it was forced to take a $7.7bn write-down on its mining assets in 2013. This year it is also being punished by investors over what is seen as excessive debt of $50bn (£32bn) on the balance sheet.

This latter was one area of good news in latest results as the company said net debt fell by $1bn. This coupled with close to $2bn of cost saving and $290m worth of asset sales should help it to preserve its credit rating, which in turn may reassure some investors that it is worth digging in.