Update: Glencore hammered in Hong Kong as global commodities slump

[HONG KONG] Shares in mining giant Glencore crashed 29.3 per cent in Hong Kong on Tuesday, hammered by weak commodity prices as Chinese demand stumbled while a brokerage warned about the group's future.

The slump to HK$8.68 followed a near 30 per cent dive in its London-listed arm Monday and comes as an economic crisis in China convulses global markets, with stocks, commodities and emerging market currencies tumbling.

However, it rebounded in early London trade surging 8.74 per cent to 74.62 pence soon after opening, with speculation it could be taken private.

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 Monday, stock of Glencore rival Anglo American 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." Glencore, 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 2011.

Two years later it relisted in the two cities after a mega-merger with Swiss mining behemoth Xstrata in a deal that made it the world's fourth-biggest commodities company in terms of market capitalisation. It then 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 - at its 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 (in) 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.

But Mike McCudden, head of derivatives at stockbroker Interactive Investor, said in a note to clients Tuesday the company was getting buy support from talk its shares could be delisted and taken private.

"Talk of Glencore, which lost around a third of its market cap yesterday, going private, is offering some relief," he told clients in a note.

BLOOMBERG