Glencore hammered in Hong Kong as global commodities slump

[HONG KONG] Shares in mining giant Glencore crashed 27.5 per cent in Hong Kong Tuesday, hammered by weak commodity prices as Chinese demand stumbled while a brokerage warned about the group's future.

The slump follows a near 30 per cent dive in its London-listed arm and comes as an economic crisis in China convulses global markets, with stocks, commodities and emerging market currencies tumbling.

Most resources-linked firms have taken a hit in recent months as the price of copper, aluminium, iron ore and oil have hit multi-year lows.

But Glencore has been particularly badly affected because of its huge US$30 billion debt load, even after the firm this month raised US$2.5 billion via a shares sale as part of a vast plan to rejig its finances.

Dealers were further spooked on Monday when brokerage Investec said in a research note to clients: "The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve.

"If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate." In London trade, Anglo American stock dived 10.09 per cent.

Bernard Aw, a strategist at IG Asia Pte in Singapore, said: "Glencore's fall was significant due to its prominence and size, and the plummet was in part triggered by perceived inadequacy in efforts to reduce its debt amid deteriorating mining prospects.

"Miners will certainly be hurt by the slowdown in China as it is the largest global consumer for metals as well as energy." The Switzerland-based former commodities trader has now lost more than three quarters of its value since listing with much fanfare in London and Hong Kong in May 2013 following a mega-merger with Swiss mining behemoth Xstrata.

The deal made Glencore the world's fourth-biggest commodities company in terms of market capitalisation and that year it announced with confidence a dividend payment despite reporting a first-half net loss owing to billions in writedowns.

However, the firm's share price has continued to fall since the listings as China's slowing growth - which is the weakest in 25 years - curtailed the country's voracious demand for commodities, sending prices tumbling.

"We know all their businesses including agricultural, energy, or mining, all are in trouble," securities analyst, Jackson Wong told AFP.

"They are in a very tough situation that how they are going to survive in the next few years with the slow economy in China, that's the worry that investors have," Wong, associate director at Simsen Financial Group, said.

"In the future Glencore will only have more difficulties in surviving and a lot of people doubt they can pay off their debts," he said, explaining that their businesses were capital intensive.

AFP