Shares in Glencore opened up by as much as four per cent on Wednesday morning, pleasing investors with a new share placing.
The debt-stricken company is seeking to reverse its fortunes with the emergency share placing, which raised the $2.5bn (£1.63bn) it had promised investors.
The commodities trader and mining company saw its shares plummet to an all-time low early on Tuesday, wiping £1bn off the company’s value, on concerns that last week’s announcement of a $10.2bn debt reduction package would not be enough to compensate for the ongoing commodities rout.
The stock fell by 7.7 per cent to 118.10p in early trading yesterday, removing last week’s gains when Glencore announced plans to scrap its dividend, sell off non-core assets and plan a rights issue in a bid to satiate investors and avert downgrades to its debt rating.
Glencore, which has been the worst performer on the FTSE 100 index this year, saw an uptick in its share price late yesterday afternoon to close 0.12 per cent higher at 128.05p, shortly before it unveiled its plans to place up to 9.99 per cent of its capital with both existing and new investors at 125 pence per share.
The stock had been trading above 300p in May, but has plummeted since.
“As previously announced, the placing is being implemented to reduce the company’s indebtedness and increase financial strength,” it said.
Citi, Morgan Stanley and Barclays are acting as bookrunners.
“I think the market was telling them that you need to get on and do this now,” Marc Elliott, analyst at Investec, told City A.M.
“It was the most sensible move as there had been a lot of uncertainty, which had caused so much volatility in the market. This should see them through for a little while.”
With time being of the essence, Glencore announced a placing of a fixed number of shares – 1.3bn – through an “accelerated book build”, rather than going through the slower process of offering the shares to all existing investors to raise a fixed amount.
It is estimated that the amount raised, after a customary sale discount, will be around $2.4bn.
A supply surplus has dragged down metal and mineral prices in recent years, but last month’s indications of a marked slowdown in economic growth in China – the world’s largest consumer of commodities – have put extra pressure on the sector.
Glencore’s main profit generators have seen spectacular price slumps this year. Coal, which represents 10 per cent of earnings, dropped to a more than six-year low last month, while copper, which accounts for 40 per cent of profits, slid in August to its lowest level since the financial crisis.
On Monday, the price of copper rallied by more than five per cent. However, this came after Glencore said it would suspend production at two of its African copper mines for 18 months as part of its debt reduction plan.
Glencore’s share performance has surpassed even the commodity market in its volatility recently.
When the debt reduction measures were announced earlier this month, the stock shot up by 10.2 per cent and led the FTSE higher.
At the time, analyst Augustin Eden at Accendo Markets said the rush of investors to buy into the stock could signal that it had reached its nadir.
“You will always find people getting into a stock at the bottom of the market,” he said. “If you don’t mind a bit of volatility, then Glencore is not a bad one to get into.”
But bearish analysts’ notes from Jefferies and Barclays this week put further pressure on the stock, with both banks cutting their target prices on the beleaguered global mining giant.