According to The Australian Financial Review today, investors have welcomed Glencore's plans to strengthen its balance sheet against a prolonged slump in commodity prices although questions remain over the effectiveness of the Swiss company's business model in a downturn.
The London-listed mining and trading house responded to its weak share price and widespread concern about the strength of its balance sheet on Monday by announcing it would cut dividends, consider assets sales and undertake a dilutive $US2.5 billion capital raising in order to cut its £30 billion debt pile by a third.
Glencore shares have been one of the FTSE 100 index's worst performers this year, losing more than half their value and underperforming rivals Rio Tinto and BHP Billiton. However, the stock closed 7 per cent higher at 131.8p on Monday.
Analysts were broadly supportive:
"These are big and achievable steps by management who are injecting up to $US550 million of their own money into the business," said Barclays in a note to clients. "They are clearly designed so that the company can operate in current or materially worse market conditions."
"Unlike other management teams in the sector, Glencore has acknowledged its debt problem and is taking steps to address it," Bank of America Merrill Lynch noted.
"We see this series of announcements as a positive overall," said analysts at Bernstein. "It removes a certain degree of uncertainty as bankruptcy risks had clearly become a serious concern for investors."
Glencore is hoping to generate $US1.5 billion in savings by cutting working capital and is aiming to raise around $US2 billion from assets sales including a stake in its agricultural business.
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