[LONDON] Glencore Plc, the commodities group that's lost almost US$50 billion in market value this year, rallied in London as analysts said the rout probably didn't reflect its true value and Citigroup Inc wrote the management should consider taking the company private.
The Swiss company rose as much as 11 per cent on Tuesday, clawing back some of the 29 per cent slump on Monday in London driven by concern the company has too much debt to withstand the declines in commodities. Even so, Glencore's credit-default swaps rose again today, signaling that the company has a 56 percent chance of default in five years, according to data from S&P Capital IQ's CMA.
"The pummeling of Glencore yesterday was irrational," Robin Bhar, an analyst at Societe Generale SA, said by phone from London. "Unless you think commodity prices are going close to zero, then this was overdone." Glencore has been embroiled in a China-led slowdown that's hit prices for commodities from oil to copper to coal, heightening investor concern about its debt and sending the shares down 77 per cent this year. To cope, Chief Executive Officer Ivan Glasenberg is working on a debt-reduction plan that includes selling assets, halting the dividend and a US$2.5 billion share sale completed earlier this month.
"The guy who can do the best signaling around this is Ivan," Legal & General Group Plc Chief Executive Officer Nigel Wilson said in an interview with Bloomberg Television. "Lack of signaling creates lack of information, which is causing a huge amount of uncertainty in Glencore, which is having a massive contagion effect right across the world." A spokesman for Glencore declined to comment.
Glencore shares added 9.2 percent to 74.91 pence as of 1:22 pm in London. The cost of insuring its debt against default rose 14 per cent to 939 basis points on Tuesday, according to data provider CMA.
Citigroup said if the stock market doesn't stop hammering Glencore shares, Mr Glasenberg should take the company private.
"The markets response is overdone," said Citigroup, which helped Glencore to list in 2011 and has worked on many key deals since. "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."
Glencore, based in Zug, Switzerland, trades everything from wheat to oil to cobalt. It's the world's biggest exporter of power-station coal, with more than 30 mines in Australia, Colombia and South Africa and is among the top three agricultural exporters in Russia, the European Union, Canada and Australia. The company controls more than 150 mining and metallurgical, oil production and agricultural assets and employs about 180,000 people.