The biggest impediment to any plans by Glencore International PLC, St. Helier (OTCMKTS:GLNCY) to expand its asset sale plan after the recent record share decline may be its expectations. As per Pengana Capital Ltd. and CRU Group, even some of the assets in the company’s portfolio, the South American copper and the Australian coal mines that so far are not for sale, would be not in the reach of prospective buyers.
The expectations gap
CRU consultant Matthew Boyle said that the company probably wouldn’t receive a fair bid for the Australian coal business, even if it was willing to sell them. Although coal prices are weakening, the mines are comparatively cheap to operate and some could stay profitable. There would remain a large gap between the assets value and bid of any potential buyer. Glencore, if they intend to sale any assets, would consider selling non-performing or non-core assets.
The stock price of Glencore have continued to decline, eroding over three quarters of its value since March 2015, even after the company scrapped its dividend, pledged to sell assets and raised $2.5 billion funds in a share sale. The Baar suggested that both copper and coal were among its assets with promising outlooks when it reported its debt reduction plan and asset sale on September 7.
The big challenge
Glencore reported a debt-cutting plan in September in an attempt to minimize its borrowings to $20 billion from initial figure of $30 billion. The company engaged Credit Suisse Group AG and Citigroup Inc. to sell a minority holding in its agricultural business. This respective segment is valued around $10.5 billion. The decline in raw material prices may deter buyers from finalizing any deal in short-term. Clearly, the trouble with divesting assets in this economic scenario is the huge chasm between sellers and buyers.
Glencore International PLC, St. Helier (OTCMKTS:GLNCY) had crashed at the end of the last week with a large gap but the rise in the following 3 sessions managed to fill up the gap almost entirely. The stock reached the upper end of the gap and that may force a short term correction in the next couple of sessions. The stock has been in a huge bear market for the last few months, as evident from the chart attached and the last phase of the decline has been contained in a perfect channel. Unless that channel is broken on the upside, the downside remains open.