Glencore shares advanced the most ever and the cost to insure its debt against default dropped as analysts at Sanford C Bernstein said concerns around the company’s solvency are unjustified. The stock rose a record 21 percent to close at 115 pence in London, exceeding the level before the sell-off on September 28th.
Glencore, one of the world’s biggest commodity traders, has recovered losses since last Monday’s 29 per cent plunge, sparked by concern the stock could be worthless if metal prices keep sliding. The shares snapped back last week after the company released a statement saying its business is “robust” and it has secure access to funding. Analysts including Citigroup had called the sell-off unjustified and recommended buying the shares.
“The belief that Glencore is having a ‘Lehman moment’ seems unfounded,” Paul Gait, an analyst at Bernstein.
“While the leverage is clearly of concern, it is not anywhere near an immediate existential threat to the company – it is an issue that needs to be managed, and that is exactly what the company is doing.” Glencore doesn’t need to go to the bond market until at least 2017 and the company has immediate access to about $13 billion in cash liquidity, according to Bernstein.
A slump in commodities is not necessarily negative for traders like Glencore because, while freight and shipping businesses will decline, there will be more demand for storage, Gait wrote. He said the agriculture business could be worth $10 billion and demand is high for such products. Glencore’s €1.25 billion ($1.4 billion) of 1.25 per cent bonds due in March 2021 rose 2.5 cents on the euro to 76.9 cents, according Bloomberg.
(Bloomberg)
