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Miner Glencore faces 'severe problems' Miner Glencore faces 'severe problems'
(about 1 hour later)
Mining firm Glencore could face "severe problems" if it does not cut its debt and commodity prices do not recover, analysts have said.Mining firm Glencore could face "severe problems" if it does not cut its debt and commodity prices do not recover, analysts have said.
Investec senior investment director Laura Lambie told the BBC that the whole mining sector was under pressure.Investec senior investment director Laura Lambie told the BBC that the whole mining sector was under pressure.
Glencore's shares price dived 30% on Monday after Investec warned that weak commodity prices could lead to the firm's equity value being "eliminated".Glencore's shares price dived 30% on Monday after Investec warned that weak commodity prices could lead to the firm's equity value being "eliminated".
But analysts at Citigroup said the sell-off in Glencore had been overdone.But analysts at Citigroup said the sell-off in Glencore had been overdone.
Citigroup said that there was still value in the business, and that Glencore should even consider going private via a management buyout if the market rout continued.Citigroup said that there was still value in the business, and that Glencore should even consider going private via a management buyout if the market rout continued.
'Lehman-moment'
"In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly," it said."In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly," it said.
Glencore's stock has fallen by more than 85% since the company went public in 2011 at a price of £5.30 a share.
Nigel Wilson, the chief executive for Legal and General, which is a shareholder in Glencore, said the mining company was facing a "quasi-Lehman moment", referring to the collapse of the US investment bank during the 2008 financial crisis.
Mr Wilson called on Glencore's management to clarify information about the company's viability to stem further falls in its stock.
"There's a lot of noise and there's not enough signalling. That lack of information causes a huge amount of uncertainty at Glencore which is having a massive contagion effect across the world," Mr Wilson said.
In Hong Kong on Tuesday, Glencore shares fell 27% - echoing the falls seen in London on Monday.In Hong Kong on Tuesday, Glencore shares fell 27% - echoing the falls seen in London on Monday.
However, its shares enjoyed a modest rebound as trading got under way in London, rising around 9%. However, its shares enjoyed a rebound as trading got under way in London, rising between 9-10%
Asset salesAsset sales
Fears over Glencore's £20bn debt pile have seen its shares dive in the past month and the cost of insuring that debt has soared. In recent weeks chief executive Ivan Glasenberg has tried to reduce the company's debt by selling shares and assets, as well as scrapping a series of dividends.
But its shares plunged to a record low on Monday after analysts at Investec wrote that low metals prices "could see almost all equity value eliminated" at the Switzerland-based company. But it has done little to allay fears over Glencore's £20bn debt pile which have seen its shares dive in the past month and the cost of insuring that debt soar.
They also questioned how much Glencore could raise from selling its agriculture division, as "valuing such a volatile business is likely to be tough".
Glencore hopes to generate up to $12bn (£7.9bn) from the sale of its grains business to reduce its debt burden.Glencore hopes to generate up to $12bn (£7.9bn) from the sale of its grains business to reduce its debt burden.
Speaking to the BBC, Investec's Laura Lambie said: "Miners grew hugely to meet the demand from China and they borrowed heavily to find it and the cost of servicing that debt and the schedule of repayments are really putting companies such as Glencore under the spotlight.Speaking to the BBC, Investec's Laura Lambie said: "Miners grew hugely to meet the demand from China and they borrowed heavily to find it and the cost of servicing that debt and the schedule of repayments are really putting companies such as Glencore under the spotlight.
"The risk is if commodities don't recover then companies like Glencore will be in trouble trying to repay its debt.""The risk is if commodities don't recover then companies like Glencore will be in trouble trying to repay its debt."
Investec has also questioned how much Glencore could raise from selling its agriculture division, as "valuing such a volatile business is likely to be tough".
Fears of a slowdown in China's economy has weighed on metal prices, with copper, aluminium and nickel all down more than 25% compared with a year ago.Fears of a slowdown in China's economy has weighed on metal prices, with copper, aluminium and nickel all down more than 25% compared with a year ago.