By Lionel Laurent and Sudip Kar-Gupta
LONDON (Reuters) - Shares in mining and trading company Glencore (LONDON:GLEN) fell almost 30 percent and closed at a record low on Monday over concerns it is not doing enough to cut its debt to withstand a prolonged fall in global metals prices.
About 3.5 billion pounds ($5.33 billion) in market value was wiped off the Swiss-based firm, whose $10 billion share offering in 2011 turned its managers into billionaire shareholders but left it saddled with debt - a growing problem as commodity prices fell.
Chief executive Ivan Glasenberg had to bow to shareholder pressure this month by agreeing to cut debt as worries mounted over the firm's ability to protect its credit rating.
Glencore has said it will suspend dividends, sell assets and raise cash, among other measures, to cut its $30 billion debt pile and protect its rating after the prices of its main products, copper and coal fell.
The fall followed publication of a note by analysts at investment bank Investec which raised doubts about Glencore's valuation if spot metal prices do not improve. The note pointed to high debt levels and a need for deeper restructuring.
"If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American (LONDON:AAL) could evaporate," the analysts wrote.
London-listed Glencore has already raised $2.5 billion through a share placement, part of a wider plan to cut its net debt.
Glencore directors and employees took up 22 percent of the new shares as the company's executives try to shore up market confidence in the business and retain their stake levels, by percentage.
Glencore's top individual shareholders, according to Thomson Reuters Eikon data, include Glasenberg, with an 8.4 percent stake, and Qatar Holding, with 8.2 percent. Qatar is also a top shareholder of German automaker Volkswagen (DE:VOWG_p), another beaten-up blue-chip.
Monday's fall spread to the broader UK mining sector, which has also felt the pain from an emerging-markets slowdown and a crash in commodities prices. The FTSE 350 mining index sank to its lowest level since Dec. 2008.
Both Glencore and Anglo American declined to comment.
"A FEW LEVERS LEFT"
The sharp slide in Glencore's share price was triggered by the firm's move in August to cut its forecast for earnings from trading, a division meant to help cushion the company against tumbling commodities prices.
This was compounded by an increasingly shaky economic outlook for top commodities consumer China and lower copper prices - Glencore's largest earner.
On Monday shares of Glencore closed down 29.4 percent at 78.09 pence after falling as much as 31 percent to a record low of 66.67 pence. The stock is down around 75 percent year-to-date.
The cost of insuring exposure to the debt of Glencore hit record highs, also on concerns the company could not withstand steep fall in metals prices.
Anglo American shares closed down 10 percent.
Glencore's plan to cut its net debt by a third by the end of 2016 has failed to boost market confidence in the company.
"Investors are not yet convinced that Glencore has gone far enough to totally allay fears that the industrial assets can service the new lower debt level," Goldman Sachs (NYSE:GS) analysts said in a note last week.
"Glencore has a few levers left – further lowering capex, signing streaming deals and releasing more working capital. Recent underperformance suggests that the measures exercised are insufficient and more is needed."
After Glencore announced its debt-cutting plans, Moody's credit-rating agency affirmed its Baa2 rating on the company but changed the outlook to negative, from stable, "to reflect the scope for a prolonged difficult market that may cause a slower recovery in Glencore's financial profile".
S&P affirmed Glencore's BBB rating and kept a negative outlook, also citing worries over economic slowdown in China and copper prices.
CHINA OUTLOOK
The outlook for China's economy was also a drag on markets, with forecasts pointing to a likely shrinking of the country's giant factory sector for the second month in a row. Profits earned by Chinese industrial companies declined at the sharpest rate in four years in August, according to official data.
Brewin Dolphin analyst Nik Stanojevic said investors were likely pricing in a fresh drop for metals and commodities prices.
News that Glencore had sold a nickel project in Brazil to Horizonte Minerals for $8 million offered little respite, with Hobart Capital Markets' Justin Haque saying the price was a fraction of what Glencore had spent.
Traders warned that the stock might fall even further if more assets were put on the block.
"The market is concerned that there is going to be a fire-sale going on at Glencore," said Beaufort Securities' sales trader Basil Petrides.
"I don't think anybody knows where the floor is on the stock at the moment."
(Fixes typo in para 1)
(Additional reporting and writing by Olivia Kumwenda-Mtambo, Editing by Andrew Roche and Timothy Heritage)