Glencore has told investors it is on track to cut debt and has shown new data about its secretive trading unit in a fresh attempt to dispel market worries over its finances which have knocked 70 percent off its share price this year.
LONDON (Reuters) - Glencore's share price eased again on Thursday despite the company's assurances to investors that its debt-cutting plans remain on track and a decision by board member and legendary banker John Mack to buy $600,000 worth of stock.
Battered by a collapse in global commodity prices over the past year, the share price has lost some 70 percent this year, nearly half of that on Monday alone. On Thursday it resumed its descent after an initial rally and was down 0.7 percent at 1415 GMT, off its day lows.
Traders blamed the return of hedge funds and short-sellers for the renewed losses.
Earlier the commodities trading and mining giant said Mack, a former chief executive of Wall Street bank Morgan Stanley, had bought stock, following a similar move this week by former BP head and Glencore board member Tony Hayward.
The share price had initially gained as much as 6 percent on Thursday after credit analysts from Barclays said a meeting they had organized with members of Glencore's management on Wednesday, including the co-head of corporate finance Carlos Perezagua and the head of strategy Paul Smith, managed to address many concerns of investors and bondholders.
"It was an encouraging meeting (on Wednesday) as we believe it helped to clear up many misconceptions and confusion we believe is currently in the market around commodity trading," credit analysts from Barclays said in a note on Thursday.
A source close to Glencore confirmed that the meeting had mainly focused on the balance sheet and debt reduction plan.
The market jitters over Glencore reflect concerns over the Swiss-based trader and miner's ability to service its heavy debts, accumulated after an asset buying spree, amid the slump in commodity prices.
"The market is telling us that Glencore is in financial distress. Our credit colleagues believe this is premature and do not have those concerns - they do not think Glencore is at risk of imminent default," the Barclays note said, adding it believed the company could retain its investment grade credit rating.
Glencore has already pledged to cut its net debt to $20 billion from $30 billion, by selling assets, reducing capital expenditure, suspending dividend payments and raising $2.5 billion of new equity capital with the share sale completed earlier this month.
On Wednesday, Glencore said it was on track to sell a stake in its agricultural business by early next year, according to Barclays.
It also hopes to complete a so-called streaming deal by the end of this year. This entails selling by-products such as silver or gold from copper production at a fixed price before it is mined. The deals could generate around $2 billion, according to market estimates.
The pledge to reduce the debt has failed to fully address market fears and some analysts have said more measures might be needed if copper and coal prices remain low for longer.
Analysts from bank Investec said this week they saw a scenario under which Glencore would direct all its earnings toward debt repayment.
Last week, Goldman Sachs said that because Glencore's trading relied heavily on short-term credit, its financing costs would soar if it were to lose its investment grade rating.
Barclays said Glencore's managers had stressed the firm had no financial covenants, no material adverse change clauses and no high yield rating triggers in its credit facilities.
"One of the misconceptions is that Glencore needs its investment grade credit rating for the marketing business. The higher cost of trading does impact trading competitiveness but most of the traders pass this through to customers. At the moment this appears to be minimal given the low interest rate environment," Barclays said.
Most analysts say that even though they understand Glencore's mining division, their models are of no use to calculate forward earnings of the trading division as Glencore discloses very little, like private rivals such as Vitol.
On Wednesday, Glencore unveiled some fresh data, according to Barclays, including the way it funds trading.
The company said that it had up to $50 billion of short-term credit lines, known as letters of credits, from over 70 banks to support its trading operations, of which only 30 percent or $17 billion were currently utilized.
Those credit lines are used to support Glencore's huge commodities inventories which the company says can be sold any moment and therefore should be seen as cash, not debt.
Glencore also disclosed that oil inventories - one of the most liquid asset - amounted to $12 billion out of the total of $17 billion in inventories.