Debt-laden commodity producer and trader Glencore Plc, down over 76 percent on a year over year basis, should go private if stock investors don’t see the value, a research note from its private banker, Citigroup, said. This tactic was enough to send the stock up 11.48 percent in London trading.
After debuting at 521 pence in 2011, Glencore never challenged its IPO price, sliding to 77 pence over the course of 4 years
Citigroup says the company could raise assets by separating its commodity trading and mining business if it were private, correcting the stock’s perceived mis-pricing. “The markets response is overdone,” the Citigroup report said. “In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly.”
Citigroup assisted in taking Glencore public in May 20, 2011, when the stock debuted on the London Stock Exchange at 521.34 pence, its highest trading price. The stock price promptly entered an elongated downtrend, never seriously challenging the IPO price, and today stands at 77.69 pence, losing over 85 percent of its value during the period it was public.
With the stock scraping historic lows, Citigroup, who helped Glencore list and market it’s IPO in 2011 and assisted the company in closing key deals since, is advising management to take the firm private after commodities have generally taken part in what is among one of the largest unified downtrends in market history. It is the downtrend in commodity prices that triggered concerns the company’s debt load is too high to manage in this market environment.
Citigroup says Glencore will deliver earnings
Despite the commodity price downtrend and flagging demand in China, Citigroup estimated the company would deliver earnings before interest, taxes and amortization of about $7.5 billion.
Bloomberg reported that Glencore hired Citigroup and Credit Suisse to sell a minority stake in its agricultural business, citing a person familiar with the situation. The planned sale is one component of broader changes that include selling $2.5 billion of new stock and trimming the company’s debt to $20 billion from $30 billion.
“Glencore is now under pressure to strengthen its balance sheet via asset sales or a capital injection, and time is of the essence,” Jefferies Group LLC was quoted as saying in a report on Tuesday. “There is value in Glencore shares if the company can pull the appropriate levers now, but risks are clearly very high,” it said, as it assigned the stock a “hold” rating after investors lost 85 percent over the life of the holding.
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