Commodity trader and mining company Glencore lost as much as one-third of its value today, representing the company’s single largest one day decline since it made its initial public offering in 2011. The company has lost over 77% of its market value this year, and it’s presently the worst performer in the FTSE 100 index. Shares for the company are currently at an all-time low.
Severe concerns over weak commodity prices have resulted in Glencore’s catastrophic decline. One investment bank issued dire warnings on the risk for the company’s earnings outlook. It’s no surprise that its shares are plummeting at an alarming rate.
CEO of Glencore Ivan Glasenberg saw his 8.4% stake in the company fall below $1 billion in value for the first time ever.
The company has performed dreadfully this year. Part of the reason is its massive amount of debt. Glencore has twice the amount of debt of its market capitalization of $16 billion.
Meanwhile, hedge fund managers are loving the commodity trader’s decline, as short-selling the company’s shares has been one of the most successful European trades this year. Short-selling Glencore is somewhat of a bet against China, as the company deals heavily in copper, one of China’s main building-blocks in its efforts to industrialize.
Investors have stated that they will continue to short-sell the company’s shares, expecting the pains experienced by Glencore to continue for the foreseeable future.
Glencore is already $30 billion in debt, and the company has stated that it will not provide dividends for shareholders for at least the next year. Additionally, the company is preparing to sell assets in order to cut down its debt.
The company will undoubtedly face more trouble in the future if commodity prices don’t increase in value soon.
Market analyst Hunter Hillcoat says, “If commodity prices don’t appreciate, where does that leave shareholders? At current spot prices, all else being the same, Glencore’s equity value is zero.”
As growth in China has slowed, the entire commodity-trading sector has suffered. China is the world’s largest importer of raw materials, and the industry is extremely dependent on the expansion of the world’s most populated nation.
Four years ago, Glencore had a market capitalization of $60 billion. The company has declined by 46% since it issued $2.5 billion in stock just two weeks ago. The most recent offering was a failed attempt to reduce its debt.
Analysts have forecasted a pathetic amount of just $8 billion in earnings for the dying company by the end of the year. Glencore says that plans to reduce its debt by one-third before the end of 2015. However, analysts have their doubts.
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