Swiss company Glencore lost £3.5 billion in value in one day

The price of Glencore’s shares plummeted on Monday by nearly 30 percent, diving to a record low amid concerns that the commodity trading company has not sufficiently reduced its debt to withstand a prolonged period of falling metal prices globally.

The market value of the Swiss company was thus reduced by about £3.5 billion ($5.33 billion) in one day. The $10 billion share offering in 2011 made the company’s managers billionaires, but it also left behind debts, which pose a problem as commodity prices decline.

CEO Ivan Glasenberg succumbed this month to shareholder pressure and agreed to reduce debt as concerns grow that the company is unable to protect its credit rating. To reduce its $30 billion debt and protect its rating, Glencore announced, among other measures, that it would suspend dividend payments, sell assets, and raise capital.

The sharp drop in the company’s share price occurred after the release of a note from analysts at investment bank Investec, who expressed doubts about Glencore’s value unless metal prices recover. The note points to a high level of debt and the need for deeper restructuring.

– “If the majority of commodity prices remain at current levels, our analysis suggests that, in the absence of significant restructuring, almost all of Glencore’s and Anglo American’s capital value could evaporate,” the analysts wrote.

The decline in Glencore’s share price began in August when the company lowered its earnings forecast from trading, a part of the business that was supposed to help mitigate the negative impact of falling commodity prices. This was also contributed to by weak economic prospects for leading commodity consumer China and lower copper prices – from which Glencore earns the most.

Glencore, which is listed on the London Stock Exchange, has already raised $2.5 billion through a share placement as part of a broader plan to reduce net debt. Directors and employees of Glencore subscribed to 22 percent of the new shares in an attempt by the company’s management to strengthen market confidence in the company’s operations and maintain ownership stakes.

However, Glencore’s plan to reduce net debt by a third by the end of 2016 has failed to instill market confidence in the company. After announcing this plan, Moody’s confirmed the company’s Baa2 credit rating but changed the outlook from stable to negative due to “prolonged difficult market conditions that could lead to a slower recovery of Glencore’s financial profile.” S&P confirmed Glencore’s BBB rating and maintained a negative outlook, also citing concerns about slowing economic growth in China and falling copper prices.