Why Glencore had to Sell
Many complaints of Glencore selling out and being accused of holding the price down. When you look into it's obvious that they are just desperate for cash and don't have the luxury of hanging around and risking their already tidy profits. Glencore is loaded with debt itself and is selling assets all over the place, they are having their own near death experience at this very moment. We should all be glad that the most of their selling is done.
http://www.worldfinance.com/wealth-management/what-does-the-future-look-like-for-glencore
The core problem for Glencore is its debt, which currently stands at over $31bn, though there are fears that it is much higher than that, which has led to many market commentators contemplating the prospect of the company collapsing completely. If that does happen, as many people are predicating it will, it will send shockwaves through the entire financial system, as it holds billions of dollars worth of derivatives – leading some to wonder if Glencore could trigger the next financial meltdown in a similar fashion to how the debt-riddled Lehman Brothers did in 2008.
Unsustainable debt
When the firm’s share price plummeted, Glasenberg was quick to react; issuing a statement explaining to shareholders how Glencore would reduce its debt and take necessary steps to mitigate the risks brought on by the depressed commodities market. “Notwithstanding our strong liquidity, positive operational free cash flow generation, lack of debt covenants, modest near-term maturities and the recent affirmation of our credit ratings, recent stakeholder engagement in response to market speculation around the sustainability of our leverage, highlights the desire to strengthen and protect our balance sheet amid the current market uncertainty”, said the CEO and CFO, Steven Kalmin, in a joint statement.
“We remain very positive on the long-term outlook for our business and this is reinforced by senior management’s commitment to take up 22 percent of the proposed equity issuance. Copper and zinc are both supply-challenged and an essential ingredient of future global growth. In seaborne thermal coal, a capex drought and low prices have helped rebalance the market. We are confident that thermal coal’s position and availability as the lowest cost fuel source for many large economies will underpin its key role in the global energy mix for many years to come”, they added.
Pledging to reduce debt is one thing, but analysts at the global investment bank and securities firm Jefferies warned at the time that whatever action the company did decide to take would need to happen fast, as the company “does not have the luxury of time”. Glencore must have got the memo, because it quickly identified a number of assets that it was ready and willing to sell in a bid to balance its books. During the second week of October, it announced that it would begin the process of selling of two of its wholly owned copper mines: Cobar in Australia and Lomas Bayas in Chile.
The move has helped the commodities giant to recover from its record low share price, which now rests a touch above 90p as it headed into the new year, up from 68.62p in late September. However, it still has a long way to go before it is to return to 300p+ range that it held at the start of 2015.
