IMO the current situation at Glencore is an interesting case and has echoes of Enron.
Glencore is a commodities trading company which has also got into the mining business. For decades it was the "perfect" business, a very small number of people generating huge profits without having to get their hands too dirty by trading commodities. The emergence of China with its appetite for commodities has been financially very advantageous for Glencore.
It went public in 2011 and then borrowed a lot of money to buy Xstrata so that not only was it dealing in commodities but it was actually producing them as well. Now that growth in China seems to be slowing, the commodities business has taken a huge hit and companies like Glencore which have a lot of debt and which are buoyed by market sentiment have been hit hard. The share price which was more than 500p in 2011 is now below 70p and there is some doubt about whether they will be able to service their debt.
With so little tangible in the business, it's not surprising that the business is in trouble. This would just be interesting were it not for the fact that this will drag all share prices down.
Glencore is a commodities trading company which has also got into the mining business. For decades it was the "perfect" business, a very small number of people generating huge profits without having to get their hands too dirty by trading commodities. The emergence of China with its appetite for commodities has been financially very advantageous for Glencore.
It went public in 2011 and then borrowed a lot of money to buy Xstrata so that not only was it dealing in commodities but it was actually producing them as well. Now that growth in China seems to be slowing, the commodities business has taken a huge hit and companies like Glencore which have a lot of debt and which are buoyed by market sentiment have been hit hard. The share price which was more than 500p in 2011 is now below 70p and there is some doubt about whether they will be able to service their debt.
With so little tangible in the business, it's not surprising that the business is in trouble. This would just be interesting were it not for the fact that this will drag all share prices down.
via International Skeptics Forum http://ift.tt/1MCZEaa
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