Glencore Plc shares rallied to a one-week high and the cost to insure the company's debt against default dropped as analysts at Sanford C. Bernstein & Co said concerns around the company's solvency are unjustified.
The stock rose 12 per cent to 106.85 pence as of 12.43 pm in London, exceeding the level before the selloff on Sept. 28. The bonds rose and five-year credit-default swaps dropped 75 basis points to 626 basis points, according to data from S&P Capital IQ's CMA. In Hong Kong, the stock soared as much as 72 per cent. The company released a statement saying it wasn't aware of any reasons for the move.
Glencore, one of the world's biggest commodity traders, has recovered almost all the 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 after the company released a statement saying its business is "robust" and it has secure access to funding. Analysts including Citigroup Inc had called the selloff unjustified and recommended buying the shares.
"The belief that Glencore is having a 'Lehman moment' seems unfounded," Paul Gait, an analyst at Bernstein, wrote in a report dated Monday.
"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 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 euros ($1.4 billion) of 1.25 per cent bonds due March 2021 rose 2.5 cents on the euro to 76.89 cents, according to data compiled by Bloomberg. The notes reached a record low of 68.9 cents on September 28, the data show.
Investors drew comparisons to Lehman Brothers Holdings Inc and Glencore last week after the stock tumbled on worries that the company isn't cutting its debt load quick enough. Investec Plc wrote in a research report that there was little value for shareholders should low raw-material prices persist and traders sought upfront payments to insure Glencore's debt for the first time since 2009.
The company stepped in on September 29 to reassure investors, saying it has secure access to funding. As the stock started rebounding, Chief Executive Officer Ivan Glasenberg told staff that the company "will emerge even stronger" and its plan to curb debt is sufficient, according to a Sept. 29 memo e-mailed to staff and seen by Bloomberg News.
The shares ended the week with a 2.3 per cent retreat. Glencore has still lost 68 per cent in 2015.
Company Restructuring
Glencore is in the middle of a restructuring to withstand lower commodity prices and bolster its finances. It has stopped paying a dividend, sold $2.5 billion in new shares and is in the process of selling assets, such as a stake in its agriculture unit and future gold and silver production, according to people familiar with the matter.
At its height in 2014, Glencore was worth more than
