SINGAPORE (Oct 5): Investors really have Glencore’s tail in a spin. Shares of the beleaguered Hong Kong and London listed commodities group this morning surged 71.6% on near seven-fold spike in volume only to plunge nearly 40% from the day’s highs in the final hours of trading to close up just 17% for the entire trading day.
The Switzerland-based firm that merged with Xstrata was forced to put out a statement to both Hong Kong Stock Exchange and the London Stock Exchange that reiterated that its board was unaware of any reason why there was such hectic activity in its shares. The frenzy in Glencore followed reports that vulture private equity funds, hedge funds and sovereign wealth funds were encircling the embattled group trying to pick up pieces in a fire sale breakup of the firm that has amassed US$30 billion ($42.7 billion) in debts.
Glencore stock has whipsawed since Hunter Hillcoat, mining sector analyst for Invested Securities in London published a report a week ago arguing that Glencore's entire equity value could be wiped out if metal prices remain at current levels.
Within hours of Hills report being published Glencore had lost 31% of its value on Sept 28. It closed down 29.4% that day. In London, Glencore rebounded 17% on Tuesday 29th, were up 14% on Wednesday 30th, down 0.48% on Thursday Oct. 1 and were up 4.8% on Friday.
Today’s gyration and huge volume spike was reminiscent of the tech bubble era in 2000 when Dotcom shares would surge 50% to 100% in a few hours only to correct sharply before the close of trading day on huge volumes.
Glencore is trying to deleverage by raising cash and selling assets. It has vowed to pare down debts from US$30 billion to US$20 billion within months. Last month it raised US$2.5 billion through a rights issue and placement. Put trying to profit from Glencore’s gyrations may be akin to catching a falling knife. Even after the sale of assets Glencore would remain a highly leveraged company heavily dependent on copper and other distressed commodities. Despite today’s gains Glencore shares are down 81% since its IPO in May 2011.
