Investment Thesis

Same team that has lead Glencore through multiple commodity cycles earlier?
o Marketing division is famed for being able to make profit in all weather
Which commodities contribute maximum to Glencore earnings?
o Outlook for commodities contributing > 80% to earnings
If China does slow down, what will the impact be?
o Historical performance through the cycle
o Debt and liquidity position
Updates 28 Sep 2015
Inability to predict market (announced buyback in 2014, had to do rights issue in
2015) does not show trading skill
Analyse: Correlation of commodity prices to Glencore stock price
High net debt, falling revenues
o First half profit has reduced by 29% due to lower coal and metal prices
Compare with fall in prices of commodities
o Analyse how much debt is immediately due
o Total debt: $48 Billion
Net debt est at $30.5 Billion year end after deducting inventory and
cash
o Claimed: $10.5 Billion of undrawn credit and cash
o Any contingents?
o Any MTM gimmicks
What is the likelihood of commodity prices increasing?
o China will there be a real slowdown
o Europe will QE effect happen
o US Fed reserve tightening
Risk: Downgrade of BBB rating
Analyse: Are market prices out of sync with supply and demand for physical
materials?
Investec Securities said in a report Monday that if commodity prices dont
rebound, the value of Glencores stock is virtually eliminated. That is because
Glencore, with nearly $30 billion in debt, would need to dedicate excess cash to
repaying debt obligations, the analyst said. The bank warned that if major
commodity prices remain at current levels, almost all of Glencore equity value
would evaporate in the absence of substantial restructuring. Goldman Sachs said
that should commodity prices fall another 5 percent, the metrics needed to
maintain Glencores credit rating would be out of the required range.
The company has already said it will suspend dividends for at least 12 months
and is preparing asset sales. The company aims to lower net debt by a third
before the end of this year in a move Mr Glasenberg said would bulletproof its
balance sheet.

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.

Stock might 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.