Glencore shares in record crash as profit fears grow

Mining and trading giant’s value slumps by third in single day as revenue doubts multiply over revenue

Ivan Glasenberg’s stake in Glencore is now worth less than £1bn, compared to about £6bn when the company was floated (EPA)

The stricken trading giant Glencore suffered another bloodbath on the stock market yesterday after spooked investors fled the company amid warnings it could sink in debt due to tumbling commodity prices.

Shares in the company, based in Zug, Switzerland, plunged by nearly a third, taking the total value destroyed at the company this year to about £32bn.

The decline was triggered by predictions from the investment bank Investec that Glencore’s value would evaporate due to its mountainous debt pile if commodity prices continued to flatline.

“We feel that Glencore may have to undertake further restructuring beyond the dividend suspension, capital raising and asset sales programmes it has already announced/implemented,” Investec’s analyst Hunter Hillcoat said.

The business has been laid low by depressed prices for a host of commodities this year, including oil, iron, copper, lead, zinc and coal. Fears over a slowdown in demand from China, a huge importer of commodities, has sparked the decline in prices.

Glencore chiefs’ one-day losses

£350m: Ivan Glasenberg

£130m: Daniel Mate

£130m: Telis Mistakidis

Glencore’s boss Ivan Glasenberg, a former coal trading star, unveiled drastic cost reduction plans earlier this month in an attempt to make the group’s balance sheet “bullet-proof”. He said he planned to cut the group’s dividend, close mines, slash debts from $30bn (£20bn) to $20bn and also raise $2.5bn by selling new shares; yet the raft of plans has failed to alleviate investors’ fears.

Investors who bought shares in the placing at 125p will have been stung by yesterday closing price of 68.62p, down 29 per cent on the day and 45 per cent lower than the placing price.

The cost of insuring Glencore debt against default also surged by 40 per cent, while yields on its short-term bonds spiked higher .

The company, which floated in 2011 and is chaired by the former BP boss Tony Hayward, is becoming one of the worst initial public offerings of the decade, with its shares collapsing from a listing price of 510p.

Investec, headquartered in South Africa and London, warned that if commodity prices continued to stay at depressed levels, forward earnings from Glencore’s operations would completely collapse.

The company’s equity would then in effect become worthless because earnings would be used to service interest payments on its huge debt pile, which the group took on to fuel expansion.

The South African-born Mr Glasenberg is Glencore’s biggest shareholder, with a 8.4 per cent stake, ahead of Qatar Holdings, an arm of the Qatar Investment Authority, which has 8.2 per cent.

When it listed in 2011, the flotation made six executives at Glencore billionaires, with Mr Glasenberg’s stake in the business valued at £6bn. Mr Glasenberg agreed to a lock-up period at the company, preventing him offloading shares. After yesterday’s slide, even his stake is now worth less than £1bn.

The shockwaves from Glencore’s troubles also hit the economy of Zambia yesterday, where the company operates the Mopani Copper Mine, the nation’s second largest employer. Fears over its plans in the territory, alongside sluggish copper prices, triggered a 17 per cent fall in Zambia’s kwacha currency.

The trading company, based in the Swiss town of Zug, has long fascinated investors, due its long- standing secrecy and the pugnacious, trader-like approach to the corporate world.

The company, which was founded in 1994 after it was spun out of Marc Rich’s trading operations in Switzerland, took over the mining company Xstrata in 2012 in a £50bn-deal that Tony Blair helped broker at Claridge’s hotel in London.

The company employs around 180,000 people.

The Short sellers: Who is betting against?

A former hot-dog salesman turned hedge fund star is one of a number of people taking bets against Glencore’s stock price, as investors pile in to make money from the firm’s tailspin. John Burbank, who runs San Francisco-based hedge fund Passport Capital, and once had a job flogging the popular snack, has a prominent short position in Glencore, according to UK regulatory filings. Overall, about 2 per cent of Glencore’s stock is currently out on loan, with that number spiking on Friday with loaned shares jumping from 90 million shares from 45 million, according to Sungard figures.

While the 2 per cent figure is not high compared to averages, lending volumes spiked in the run up to the group’s capital raising announcement earlier this month. Stock out on loan jumped from about 1.5 per cent at the start of August to 2.9 per cent at the end, Markit figures show. UK regulatory disclosures reveal Mayfair-based Lansdowne Partners, US firm Sunrise Capital and hedge fund Davidson Kempner Capital Management are also shorting the stock.