Glencore is paying off a $10 billion debt pile and its stock is flying
Flickr/Patrick
With the commodities market tanking, and real concerns over Chinese growth and industrial production, the company needed to address fears over its massive debt pile.
It has found six different ways to save money and pay back creditors:
- Issue $2.5 billion (£1.6 billion) in new shares
- Save $1.6 billion (£1 billion) by cancelling this year's dividend
- Save $800 million(£526 million) by cancelling next year's interim dividend
- Sell $2 billion (£1.3 billion) assets
- Reduce long term loans by $800 million (£526 million)
- Cut capital expenditure costs by up to $1 billion (£660 million)
Glencore's chief executives are buying up 22% of the new shares with their own money, which at least shows their confidence in the company's future prospects, while Morgan Stanley and Citi will take the rest. The company said it would issue more details later.
The market absolutely loves a responsible borrower. Here is Glencore's stock today:
Investing
Analyst Oliver O'Donnell at VSA capital said: "Financial leverage has been a key concern for investors and it is positive that GLEN is addressing the issue as its shares have fallen 60% since the start of May 2015. However, we remain cautious given the upcoming dilution."
To put all this in perspective the company will still have debt "in the low $20 billions" even if everything goes to plan.
Also, if you invested money in Glencore shares earlier this year, you'll need a few more days of huge rises to get it back. The stock has been crushed in the last few months.
Investing
Glencore is either underpriced or has further to fall. It depends whether you think the China sell-off and commodities rout is overdone. Either way, if you like volatility, Glencore is the ideal company stock for you.
Analysts at Accendo Markets said: "While the fact remains that commodities are still under immense pressure and those who dig them up are too, blue-chip stocks trading at a discount like Glencore's provide an ideal vehicle for riding price swings of 10% or more - a view supported by an average daily trade volume just shy of 200M on Glencore stock since late August."
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