Glencore shares drop 31% after Investec debt warning

Glencore’s shares dropped by as much as 31% in London on Monday September 28 after analysts at Investec warned that the company’s earnings potential will be wiped out by its debt obligations if commodity prices do not rebound.

Under a base case scenario of a slow recovery in commodity prices, Glencore would be able to reduce debt as a contribution to enterprise value to about 20% by the end of the decade, compared with 81% today, Investec wrote. But if prices do not improve from spot levels, 100% of the company’s core earnings could be swallowed up by debt repayments, the brokerage and asset manager said. “Despite the drastic action that management has announced recently (even assuming all of the measures are successfully implemented), a spot price scenario results in an almost complete collapse in forward earnings, such that no meaningful estimate of shareholder value can be derived under our [price-to-earnings] methodology,” the analysts wrote....


Mark Burton

September 28, 2015

15:45 GMT