Glencore in freefall as analysts see tougher restructuring

[LONDON] Glencore Plc plunged as much as 31 per cent, extending a rout that's wiped more than US$14 billion off its value this month and highlighting investor concerns that it's not cutting its debt load quick enough.

Chief Executive Officer Ivan Glasenberg's debt-reduction plan announced three weeks ago and the move to sell a stake in its agricultural business reported by Bloomberg on Friday has failed to stanch the bleeding. Investec Plc warned Monday that there was little value for shareholders should low raw-material prices persist.

"In the current climate, debt is fast becoming the most important consideration," Hunter Hillcoat and Marc Elliott, analysts at Investec, wrote in a note to investors. "Glencore may have to undertake further restructuring." The slump on Monday was the most since the company's initial public offering in 2011. The company has been forced to sell new stock and scrap its dividend as part of the US$10 billion debt-reduction program as China's economic slowdown hurt demand for commodities and sent prices slumping. Goldman Sachs Group Inc said last week that Glencore's recent steps to reduce debt and bolster its balance sheet are inadequate.

Glencore fell to a record low and was down 28 per cent at 70.48 pence by 1:54 pm in London. The stock slumped more than 16 per cent for the second time in a week and has declined 76 per cent this year, the worst performance in the UK's benchmark FTSE 100 Index.

Glencore's 1.25 billion euros (US$1.4 billion) of 1.25 per cent bonds maturing March 2021 fell 7 cents on the euro to 74 cents, the lowest since the securities were issued in March, according to data compiled by Bloomberg. The cost of insuring Glencore's debt against default rose 29 per cent to 711 basis points on Monday, according to data provider CMA.

Glencore has hired Citigroup Inc. and Credit Suisse Group AG to sell a minority stake in its agricultural business, a person familiar with the situation said Friday. The sale is part of the debt-cutting program announced earlier this month that included selling US$2.5 billion of new stock in an attempt to reduce the company's debt to $20 billion from US$30 billion.

BLOOMBERG