Investors should ask what Glencore is doing here

Outlook

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The Independent Online

A day after one broker argued that Glencore’s shares could be worthless, the home team has leapt to its defence.

Bottomless? We don’t think so, a team of analysts at the house broker Citi say when it comes to the collapsing share price. They argue that the market’s concerns over Glencore’s $20bn (£13bn) debt pile, and the challenge of servicing it at a time of rock-bottom commodity prices, are “overdone”. 

And they warn that if the market doesn’t shape up and see the value, Glencore’s management could decide to take the company private – with the subtext that such an outcome would yield some hefty fees for the investment bank advising on the transaction. Naturally, Citi’s corporate finance department would be only too happy to furnish Glencore with a quote. 

Many people would be inclined to say, “please do that and don’t forget to remind Glencore to close the door upon its exit from the market”.  

As I wrote earlier this week, there are lots of people with pensions and savings who have taken a nasty hit due to the miner’s dramatic fall from grace since its controversial flotation (although their problems pale by comparison with those of the African workers restructured out of their jobs). Most of them will have exposure to Glencore by dint of having their money invested in cheap funds that track the performance of the stock market. 

Of course, if you choose a tracker, you don’t get to choose between the bad and the good. If you want a measure of discrimination, you have to stomach the extra fees and buy an actively managed fund – preferably one with a manager who could be trusted to turn their nose up at Glencore, as many institutional investors did. 

All that is true, but it doesn’t mean we can’t raise questions about the company’s inclusion in the FTSE 100, and thus the funds that track it. 

Glencore might have its primary stock market listing in London, and it might have a small office in this country. But that is about as far as its connection to this country goes. Its real headquarters are located in Zug, Switzerland. Its sprawling operations span the globe.

The company satisfies the rules for inclusion because of that listing, but the FTSE 100 is a flag of convenience, nothing more. Perhaps it’s time to take a fresh look at those rules.

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