Glencore hit another record low on Tuesday on growing concerns that it may be forced into an equity issue.
Miners slumped on data showing China’s factory activity contracted at its fastest pace in three years, which put further pressure on copper and coal prices.
Glencore closed down 10 per cent to 133.5p, which took its loss since flotation in 2011 to 75 per cent. With the major miners needing to raise as much as $60bn to recapitalise their balance sheets, companies should act quickly, argued Merrill Lynch.
“Early recappers could be rewarded with less dilution, premium market ratings and possibly a licence to undertake M&A,” it told clients.
Merrill estimated that, if current spot commodity prices stretch into perpetuity, Glencore has a $9.3bn capital shortfall against the debt target needed to safeguard its credit rating and would need to raise more than $16bn to cut net debt to 2 times earnings before interest, tax, depreciation and amortisation.
That gives Glencore shares a net present value of 42p a share at current spot prices and would leave “limited equity value” in a deeper downturn, Merrill said, adding: “For us, this confirms what most investors already know about Glencore; it is something of a ‘bull call’ on commodity markets.”
Sector peers matched the slump with Anglo American off 7.7 per cent to 684.4p, BHP Billiton 6.7 per cent lower at £10.56 and Antofagasta slipped 5.7 per cent to 574.5p. The FTSE 100 was down 3 per cent, off 189.40 points, to 6,058.54.
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