(GS) Altice : Summer sell-off leaves large organic upside; raising FCF ests, CL

ALtice : Summer sell-off leaves large organic upside; raising FCF ests, CL Buy

* Source of opportunity
Altice underperformed sharply during the recent market sell-off and now
trades materially below our valuation excl M&A potential, which increases
to €30/shr (from €28) as our analysis suggests there remains c.€1 bn of extra
cost-cutting opportunity in France. Given attractive organic upside potential,
we see less likelihood that Altice will issue equity to acquire new assets
until the stock price recovers. Even so, we see several opportunities for
additional value creation, including: (a) a buy-in of NUME, which could be
4%-13% accretive to FCF/shr, (b) rapid de-leveraging creating >€10 bn of
debt-financed M&A capacity by mid-2016, (c) scope for accretive buy-backs.

* Catalyst
Catalysts include: a) improving customer trends in France in the coming
quarters and strong early execution in Portugal, which should reassure on
the sustainability of Altice’s cost-cutting ‘formula’; b) earnings upgrades –
our raised 2016/17 EBITDA forecasts are 10% / 13% ahead of Bloomberg
consensus, but remain conservative relative to ATC’s long-term ambition to
reach c.50% EBITDA margins; and c) the French spectrum auction could be
competitive, but this would increase pressure to price rationally, and we
note recent reassuring commentary from Bouygues.

* Valuation
On our higher forecasts (our medium-term prop. FCF increase 8%-19%),
Altice now trades in line with European incumbents (9% 2017E FCF yield)
despite its superior growth / M&A optionality. Our valuation excl. M&P
potential is now €30/shr, implying 25% upside and our ‘blue-sky’ analysis
(incorporating €36 bn of debt-financed future acquisitions) implies upside to
€45/shr. Our 12-month ROIC-based price target remains €41/shr, as we
moderate our expectations for the pace of future incremental M&A.

* Key risks
Downside risks include execution, increased competitive/regulatory
pressure in all markets; access to high-yield markets is key for future M&A.

>>> What to look at today - 9th of September 2015

Dow+2.42% S&P+2.51% Nasdaq+2.73% Russell+2.25% VIX 24.98 (-10.1%)
US Market closed higher after a l,ong week end. US did ok despite a volatile chinese market and some mixed data. Better than expected economic data highlighted the European session as eurozone Q2 GDP was unexpectedly revised up to 0.4% quarter-over-quarter from 0.3%. technology (+2.8%), industrials (+2.8%), financials (+2.6%), and health care (+2.8%) kept the market from drifting too far away from its early high. The strength in those areas proved supportive in the late afternoon as the market charged to a fresh high during the last two hours of the session. Viotech surge also 4.4%. the energy sector (+1.5%) was able to end the day well above its flat line even as crude oil futures shed 0.3%, slipping to $45.94/bbl. Volume were below average just below 800mil shares. US After Hours PLAY +9.3%, KFY +0.9%, TIVO +0.2%, PSUN -16.7%, FCEL -9.2%, MW -6.1%, PBY -3.9 following earnings/guidance, AKBA +65.2% on phase 2 results, VTAE +29.6% on phase 1 results, TTPH -77.8% on trial results,ZQK -60.4% on Bankruptcy report, FLXN -41.4% on phase 2 results...Broad-based risk appetite on display in the US session has resonated in Asia, where all key regional indices are up...Nikkei225 rally of over 6% is particularly impressive, as investors cheered Japan PM Abe's announcement to cut corporate tax rates by at least 3.3% or even more in FY16. BOJ dove Shirai also called for continued accommodative environment given expectations of 1% inflation holding over medium-long term. a research note from Fitch suggested China's local debt rise is significant but manageable. In FX, PBoC set Yuan a touch firmer, and offshore currency rallied by over a cent to 6.4450. World Bank chief economist Basu added his voice to other critics urging caution. Basu said the hike would trigger "panic and turmoil" in emerging markets, even though there would be no major crisis.

Nikkei +7.7% Hang Seng +3.40% Shanghai +2.3%

Eur$ 1.1159 CNY 6.3740 JPY 120.41 GBP 1.5381 EURCHF 1.0948 RUB$67.7656 WTI $46.18(+0.48%)

S&P +1% Eurostoxx +2% Dax +2% SMI +1.91%
Macro :
- China Aug. Retail Auto Sales Rise 0.6% on Year, PCA Says

Keep an eye on :
- ABBN VX : ABB Cuts 2015-2020 Revenue Growth Target on Oil Price, EM Growth
- AF FP : Air France-KLM August Passenger Traffic Rises 2.1%
- AAPL US : Apple in Talks to Open Store on Champs Elysees, Le Figaro Says
- BLT LN : BHP, Rio Unlikely to Cut Div., Anglo May Follow Glencore: CIBC
- GBB FP : Bourbon 1H Adj. Ebit EU48.8m Rises 40% Y/y; Keeps Objectives
- CERV IM : CVC Selling 29m shares (14.87%) @E6.55/sh (cut to 24.4% stake)
- CSGN VX : Credit Suisse Said to Lose Three Asia Bankers as Strategy Shifts
- GSK LN : GSK/Theravance Primary Endpoint Was Not Met in Summit COPD Trial
- ITP FP : Interparfums Sees Significant Earnings Growth 2015 and Beyond
- SDF GY : Hesse Ministry Wasn’t Told of Any Hostile Bid by Potash for K+S
- LHA GY : Frankfurt Court Says Lufthansa Pilots Strike Can Proceed
- MC FP : Hennessy Introduces New Cognac for Travelers, Les Echos Reports
- NG/ LN : National Grid Hires Boston Scientific’s Adduci as CIO: WSJ
- UG FP : Peugeot Citroen Plans Temporary Halt at Madrid Plant: Echos
- REP SM : Repsol Mulls Sale of Home Butane Gas Unit: El Confidencial
- RYA LN : Ryanair Raises FY Profit Guidance by 25%
- TDC DC : Denmark’s TDC Said to Have Held Talks to Buy Cable Firm Com Hem
- RIGN SW : Transocean Sees ‘Very Healthy Position’ by End of 2017

>>> Europe : Brokers Upgrades & Downgrades - 9th of September 2015

>>> Up
*ATLAS COPCO RAISED TO BUY FROM NEUTRAL AT UBS
*BANCA POP MILANO RAISED TO BUY AT HSBC
*BMW RAISED TO OVERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
*BMW RAISED TO BUY VS HOLD AT BANKHAUS LAMPE
*CREST NICHOLSON HOLDINGS RAISED TO BUY VS NEUTRAL AT GOLDMAN
*EMIRA PROPERTY FUND RAISED TO BUY VS HOLD AT RENAISSANCE
*EUTELSAT RAISED TO BUY AT JEFFERIES
*FBN HOLDINGS RAISED TO HOLD VS SELL AT RENAISSANCE
*FLSMIDTH RAISED TO HOLD AT HSBC
*FOXTONS GROUP RAISED TO NEUTRAL VS SELL AT GOLDMAN SACHS
*GEMALTO RAISED TO NEUTRAL VS SELL AT UBS
*HEIDELBERGCEMENT RAISED TO BUY VS NEUTRAL AT GOLDMAN SACHS
*LAFARGEHOLCIM RAISED TO BUY VS NEUTRAL AT GOLDMAN SACHS
*NEW EUROPEAN PROPERTY RAISED TO BUY VS HOLD AT RENAISSANCE
*REDEFINE INTERNATIONAL RAISED TO BUY VS HOLD AT RENAISSANCE
*SKANSKA RAISED TO NEUTRAL FROM SELL AT GOLDMAN SACHS
*TYMAN RAISED TO BUY VS HOLD AT LIBERUM
*UNICREDIT RAISED TO BUY VS HOLD AT SOCGEN
*UNICREDIT RAISED TO BUY AT HSBC
*VOLVO RAISED TO NEUTRAL FROM SELL AT UBS
*ZURICH INSURANCE RAISED TO BUY FROM NEUTRAL AT UBS

>>> Down
*BANCO POPOLARE CUT TO HOLD AT HSBC
*EIFFAGE CUT TO NEUTRAL FROM BUY AT GOLDMAN SACHS
*HYPROP INVESTMENTS CUT TO SELL VS HOLD AT RENAISSANCE
*REDROW CUT TO NEUTRAL VS BUY AT GOLDMAN SACHS
*RESILIENT PROPERTY INCOME CUT TO SELL VS HOLD AT RENAISSANCE
*TAYLOR WIMPEY CUT TO NEUTRAL VS BUY AT GOLDMAN SACHS
*UBI BANCA CUT TO REDUCE AT HSBC


>>> PT Change


>>> Initiation
*CRH RATED NEW BUY AT GOLDMAN SACHS, PT EU32.3
*JIMMY CHOO RATED NEW OUTPERFORM AT RBC; PT 200P
*STATOIL ASSUMED AT UNDERPERFORM AT CREDIT SUISSE; PT NOK114

>>> Call
>> Stock
*CREST NICHOLSON ADDED TO GOLDMAN SACHS CONVICTION BUY LIST
*HEIDELBERGCEMENT ADDED TO GOLDMAN SACHS CONVICTION BUY LIST
*SWISSCOM REMOVED FROM CITI FOCUS LIST EUROPE; STAYS BUY

>>> Asian Update

Asian Mid-session Update: Nikkei spikes up over 5% on Abe pledge to lower corporate tax rates; World Bank chief economist also urges Fed to wait on liftoff
Wed, 09 Sep

***Economic Data***
- (AU) AUSTRALIA JULY HOME LOANS M/M: 0.3% V 0.8%E
- (AU) AUSTRALIA SEP WESTPAC CONSUMER CONFIDENCE INDEX: 93.9 V 99.5 PRIOR, M/M: -5.6% V +7.8% PRIOR
- (JP) JAPAN AUG M2 MONEY STOCK Y/Y: 4.2% V 4.1%E; M3 MONEY STOCK Y/Y: 3.4% V 3.3%E
- (KR) SOUTH KOREA AUG UNEMPLOYMENT RATE: 3.6% V 3.8%E
- (PH) PHILIPPINES JULY UNEMPLOYMENT RATE: 6.5% V 6.4% PRIOR
- (UK) UK AUG BRC SHOP PRICE INDEX Y/Y: -1.4% V -0.2% PRIOR; 28TH STRAIGHT DECLINE

***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 +5.7%, S&P/ASX +1.9%, Kospi +2.3%, Shanghai Composite +2.2%, Hang Seng +2.9%, Sept S&P500 +0.6% at 1,978

***Commodities/Fixed Income***
- Dec gold +0.2% at $1,123/oz, Oct crude oil +0.5% at $46.18/brl, Dec copper +1.5% at $2.47/lb
- (JP) BOJ offers to buy ¥400B in 5-10yr JGBs, ¥240B in 10-25yr JGBs, and ¥140B in JGBs with maturity over 25-yr

***Market Focal Points/FX***
- Broad-based risk appetite on display in the US session has resonated in Asia, where all key regional indices are up some 2% or more. S&P futures also point to another high open, up some 13pts to test 1,980. Nikkei225 rally of over 5% is particularly impressive, as investors cheered Japan PM Abe's announcement to cut corporate tax rates by at least 3.3% or even more in FY16. BOJ dove Shirai also called for continued accommodative environment given expectations of 1% inflation holding over medium-long term, even though the sluggishness in Europe was seen as transitory. Shirai said more work needs to be done to increase public awareness of 2% inflation target. USD/JPY also tracked the risk-on rally, rising over 60pips from the lows above 120.40.

- Investors in China continued to shrug off the disappointing trade figures released overnight, bidding up markets further going into the release of lending and inflation data later this week. UBS and ANZ economists both noted the trade figures suggest the economy is likely to face growing downward pressure, but did not indicate the figures are crippling. Instead, impending SOE reform was widely cited for boosting sentiment. Moreover, a research note from Fitch suggested China's local debt rise is significant but manageable. In FX, PBoC set Yuan a touch firmer, and offshore currency rallied by over a cent to 6.4450.

- Australia economic data showed a decline in Westpac consumer confidence and a miss on home loans, but that hardly mattered. RBA Dep Gov Lowe remarks called for more non-mining investment, adding that low AUD and interest rates were not sufficient for a sustainable rise in spending. Lowe added that incoming data outside of China has been mostly positive, estimating 2% rate of growth over medium term or even as high as 3% if non-mining investment is boosted. Also of note, TD Securities economist Beacher called attention to the recovery in iron ore prices, suggesting the AUD/USD currency pair decline is overblown and that the more fair value would be around $0.76. AUD/USD was up as much as 50pips from the lows near $0.7070.

- With just over a week to go to the pivotal FOMC decision, World Bank chief economist Basu added his voice to other critics urging caution. Basu said the hike would trigger "panic and turmoil" in emerging markets, even though there would be no major crisis.


***Equities***
US equities / ADRs:
- AKBA: Top-Line results from its Phase 2 study of Vadadustat in dialysis patients with anemia related to chronic kidney disease achieved primary objective; +68.4% afterhours
- PLAY: Reports Q2 $0.40 v $0.23e, R$217M v $205Me; +9.7% afterhours
- CLR: Reduces 2015 capital spending to align with projected cash flow until oil prices strengthen; affirms 2015 guidance; +1.6% afterhours
- M: Plans 35 to 40 underperforming store closings in early 2016 (account for 1% of total Macys revenue); +0.6% afterhours
- YHOO: IRS declines to grant requested ruling regarding plan for tax free spinoff of Alibaba stake; Yahoo continues to work on the pending Aabaco spin off - filing; -4.0% afterhours
- MW: Reports Q2 $1.07 v $1.05e, R$920M v $947Me; -4.4% afterhours
- PSUN: Reports Q2 -$0.06 v -$0.03e, R$195.6M v $205Me; -16.7% afterhours

Notable movers by sector:
- Consumer discretionary: TCL Corp 000100.CN +1.9% (Aug result)
- Financials: Bank of Yokohama 8332.JP +3.7% (merger update); Sunac China Holdings 1918.HK -3.5% (Aug result, strategic partnership); Agile Property Holdings 3383.HK +0.5% (Aug result); Guosen Securities 002736.CN +2.7% (Aug result)
- Industrials: Fuji Heavy Industries 7270.JP +8.2% (to raise dividend)
- Technology: Toshiba Corporation 6502.JP -1.0% (Q1 result); Chicony Electronics 2385.TW +0.6% (Aug result); Compeq Manufacturing 2313.TW +0.9% (Aug result)
- Materials: Paladin Energy PDN.AU +11.3% (share repurchase)
- Energy: CNOOC 883.HK +3.6% (update)
- Telecom: Coolpad Group 2369.HK -16.2% (confirms to have received notice to exercise put option)

WSJ: Yahoo’s Plan for Tax-Free Alibaba Spinoff Faces IRS Setback


Yahoo’s Plan for Tax-Free Alibaba Spinoff Faces IRS Setback
Yahoo plans to spin off some $23 billion worth of shares in Alibaba

3 COMMENTS
The federal government dealt a setback to Yahoo Inc.’s tax-free plan to spin off some $23 billion worth of shares in Alibaba Group Holding Ltd., potentially jeopardizing one of Chief Executive Marissa Mayer’s defining moves in her three years running the company.

The Internet company said in a filing Tuesday it withdrew its request for a ruling from the Internal Revenue Service last week after it received word that the agency wouldn’t approve it.

But Yahoo said the IRS indicated it hasn’t concluded the planned spinoff should be taxable, and therefore wasn’t ruling against it.

In the filing, Yahoo General Counsel Ron Bell said Yahoo’s board “will continue to carefully consider the company’s options, including proceeding with the spinoff transaction.”

A Yahoo spokeswoman declined to comment beyond the filing. A spokesperson from the IRS said the agency doesn’t comment on individual taxpayers.

Tax concerns have weighed on Yahoo investors since the company announced in January its plan to spin off 384 million Alibaba shares, representing about 15% of the Chinese e-commerce giant.


Failing to get the IRS to sign off on a tax-free deal could force Yahoo to choose between incurring a tax in the billions of dollars or scrapping the plan for a spinoff altogether.

Completing the spinoff is important for Ms. Mayer, who has failed to show meaningful growth in the company’s core ad business.

Yahoo’s stock gains under Ms. Mayer are largely tied to investors’ growing enthusiasm for its Alibaba stake and the CEO’s commitment to return billions of dollars to shareholders through a spinoff. The value of the Alibaba stake, worth nearly $40 billion when Yahoo unveiled its spinoff plan, has since declined.

The IRS said in May that the agency is considering changes to its rules governing spinoffs, sending Yahoo shares sliding.

The company listed the possibility of a rejection by the IRS as the first “risk factor” in its registration statement for Aabaco, the name of the planned spinoff company.

Yahoo also said it faces “uncertainties” around whether the plan will qualify for exemption of taxes by Chinese authorities.

“The board of directors at Yahoo is not going to risk incurring billions of dollars in taxes unless it has adequate assurance that the transaction will be tax free,” said Gary Friedman, a tax partner at law firm Debevoise & Plimpton LLP.

Yahoo CEO Marissa Mayer ENLARGE
Yahoo CEO Marissa Mayer PHOTO: BLOOMBERG NEWS
Typically, a board can seek assurance on a tax-free spinoff in two ways: Obtaining a ruling from the IRS or seeking the opinion of an outside legal counsel.

“It would be difficult for outside counsel to provide Yahoo with a tax opinion that reaches a very high level of certainty now that the IRS has refused to rule,” Mr. Friedman said.

When it announced the spinoff plan in January, Yahoo said it expected to receive “a favorable ruling from the Internal Revenue Service with respect to certain aspects of the transaction and a legal opinion with respect to the tax-free treatment of the transaction.”

The IRS has scaled back its practice of private letter rulings in recent years, and now only rules on specific questions or issues that are part of a broader spinoff deal. Neither Yahoo nor the IRS has said what the company was seeking a ruling on.

One issue the IRS may have declined to rule on is whether Yahoo has met the requirement to include “active trade or business” along with the company it is spinning out. Yahoo said in February it would jettison Yahoo Small Business, a division that sells tools to help small business owners sell their goods online, as part of the spinoff.

The IRS may have viewed this unit as too small or failing to meet the requirement of an active trade or business, Mr. Friedman said. Yahoo could revise its tax plan to include a different, possibly larger, business as part of the spinoff, he said.

“It’s been anything but a smooth ride toward monetizing Alibaba,” said Brian Wieser, an analyst at Pivotal Research. “We find ourselves in situation now where it’s uncertain how this will proceed.”

Yahoo’s stock fell nearly 4% to $29.68 in after-hours trading on Tuesday after the company’s announcement.

Ms. Mayer has aimed to quell investor fears about a potential tax bill, saying at a tech conference in June that she has been reassured proposed changes to IRS tax rules wouldn’t apply to Yahoo’s planned spinoff.

Investors are still waiting to hear what the company plans to do with its stake in Yahoo Japan, another Asian asset worth billions.

On a call with analysts in July, finance chief Ken Goldman said Yahoo has met with advisers to weigh options on Yahoo Japan, but that its “highest priority” is spinning off the Alibaba stake this year.

>>> US After Hours Summary: PLAY +9.3%, KFY +0.9%, TIVO +0.2%, P

After Hours Summary: PLAY +9.3%, KFY +0.9%, TIVO +0.2%, PSUN -16.7%, FCEL -9.2%, MW -6.1%, PBY -3.9 following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: PLAY +9.3%, KFY +0.9%, TIVO +0.2%

Companies trading higher in after hours in reaction to news: AKBA +65.2% (announced positive top-line results from its Phase 2 study of vadadustat in dialysis patients with anemia related to chronic kidney disease), VTAE +29.6% (announced positive top-line results from initial phase 1 study of first-in-class RORyt Inhibitor VTP-43742 in autoimmune disorders), CLR +1.6% (announced plans to reduce its 2015 capital budget by $300-350 million more than previously approved)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: PSUN -16.7%, FCEL -9.2%, MW -6.1%, PBY -3.9%, CLLS -0.9%

Companies trading lower in after hours in reaction to news: TTPH -77.8% (announced eravacycline did not achieve primary endpoint in pivotal portion of complicated urinary tract infections Trial), ZQK -60.4% (Bloomberg reporting co will prepare a bankruptcy filing), FLXN -41.4% (reported top-line data from pivotal phase 2b clinical trial for FX006 in patients with moderate to severe osteoarthritis (OA) knee pain; primary endpoint of study not met), AQXP -5.9% (announced proposed public offering of $75 million of common stock), CMRX -5.2% (provided clinical development update for Brincidofovir, stating that SUPPRESS data continues to be expected in early 2016), FPRX -3.4% (initiated patient dosing in its Phase 1a/1b clinical trial, evaluating the immunotherapy combination of FPA008 with Opdivo), UAL -1.7% (named Oscar Munoz as President and CEO; announced that its executive vice president of communications and government affairs and its senior vice president of corporate and government affairs have stepped down), DY -1.7% (announced a private placement offering of $400 mln in convertible senior notes due 2021; authorizes the repurchase of up to $75 million of its common stock)

>>> US Close Dow+2.42% S&P+2.51% Nasdaq+2.73% Russell+2.25%

Closing Market Summary: Stocks Begin Short Week With Broad Surge

After losing 3.4% last week, the restless stock market began the holiday-shortened week with a broad-based surge. The Nasdaq Composite led the way, spiking 2.7% while the S&P 500 jumped 2.5% with the bulk of the advance taking place at the opening bell.

The buying surge at the start reflected a build-up of strength in the futures market that took root yesterday as U.S. futures labored their way higher alongside European equities. Once the Tuesday session began in Asia, China's Shanghai Composite rallied 2.9% with speculation of continued state support for equities overshadowing mediocre trade data (trade balance $60.24 billion; expected $48.20 billion) that showed a 5.5% year-over- year decline in exports (expected -6.0%) and a 13.8% drop in imports (expected -8.2%; prior -8.1%).

The late-afternoon gains in China stirred up overall risk tolerance, leading to more gains in the U.S. futures market while European equities enjoyed an opening surge. Better than expected economic data highlighted the European session as eurozone Q2 GDP was unexpectedly revised up to 0.4% quarter-over-quarter from 0.3%.

Once the U.S. cash market opened, equity indices spiked, hovering not far below their highs into the afternoon. All ten sectors contributed to the opening move higher, but daylong strength in heavily-weighted groups like technology (+2.8%), industrials (+2.8%), financials (+2.6%), and health care (+2.8%) kept the market from drifting too far away from its early high. The strength in those areas proved supportive in the late afternoon as the market charged to a fresh high during the last two hours of the session.

Despite the big push higher, today's trading volume was a bit below recent averages. That said, a final buying surge brought the NYSE floor total up to 898.5 million shares versus the 20-day average of 984 million.

The top-weighted technology sector was a clear outperformer at the start and the group remained among the leaders into the close. High-beta chipmakers rallied broadly with the PHLX Semiconductor Index surging 4.4% back to levels seen in mid-August. All 30 index components posted solid gains, but the spotlight was on Microchip (MCHP 44.86, +3.86), which spiked 9.4% after the company raised its guidance.

Similar to chipmakers, the high-beta biotechnology group enjoyed all-around strength, sending the iShares Nasdaq Biotechnology ETF (IBB 351.77, +14.67) higher by 4.4%. The biotech ETF climbed above its 200-day moving average (345.04) and helped the Nasdaq stay ahead of the broader market throughout the session.

With more than 2400 NYSE-listed issues ending the day with gains versus 650 decliners, green hues dominated most stock screens. Even the energy sector (+1.5%) was able to end the day well above its flat line even as crude oil futures shed 0.3%, slipping to $45.94/bbl.

Today's advance in equities lured some money out of the Treasury market as the 10-yr note retreated into the afternoon, settling near its low with the benchmark yield up seven basis points at 2.19%.

Investors received just one economic report today, which was met with little fanfare. The Consumer Credit report for July showed an increase of $19.10 billion, which was higher than the consensus estimate of $18.00 billion. The prior month's credit growth was revised to $27.00 billion from $20.70 billion.

Tomorrow's economic data will be limited to the 7:00 ET release of the weekly MBA Mortgage Index and the July Job Openings and Labor Turnover Survey, which will be reported at 10:00 ET.

  • Nasdaq Composite +1.6% YTD
  • Russell 2000 -3.5% YTD
  • S&P 500 -4.4% YTD
  • Dow Jones Industrial Average -7.5% YTD

FT : Glencore still eyeing options to raise $2.5bn in new equity

Glencore still eyeing options to raise $2.5bn in new equity

Glencore's new plan to slash its large debt load may have provided shareholders with something to cheer about, but the mining and trading group is keeping the market guessing about one key part of the strategy.
The format and timing of Glencore’s proposal to raise up to $2.5bn of new equity have yet to be decided, although Ivan Glasenberg, Glencore’s tough talking chief executive, and Steven Kalmin, finance director, have warned analysts not to assume they would launch a rights issue.

“We have just said that we are proposing an equity issuance,” said Mr Kalmin on Monday, as the debt reduction plan was unveiled. “There’s a range of potential options, instruments, structures available obviously.”
Glencore’s shares closed up 4 per cent on Tuesday to 137.6p, having jumped 7 per cent on Monday, after the UK-listed group committed to cutting its net debt by about one-third to just over $20bn by the end of next year.
Investor concerns about Glencore’s high leverage compared with competitors have been one important factor behind its shares being the worst performer in the FTSE 100 index over the past year.
Another key factor has been China’s economic slowdown, and the slump in commodity prices. Glencore, like other large miners including BHP Billiton and Rio Tinto, rode the China-led commodities boom of the previous decade, but its share price has fallen about 60 per cent since September last year.
Glencore’s apparent caution about embarking on a rights issue — where new stock is offered to existing shareholders in proportion to their stakes — may be rooted in how they are seen by some as time-consuming and bureaucratic.
Among other things, Glencore would have to call a meeting of shareholders, who would be asked to approve the capital increase.

“There’s no pressure on the company to do a particular structure,” said one person familiar with the company’s thinking. “There’s a very open dialogue with the shareholders about what they would like Glencore to do and when they should do it.”
Rather than a rights issue, Glencore could opt for an equity placing with a limited group of institutional investors, or issue a form of convertible debt, according to bankers. A combination of both is also possible. Under UK rules, Glencore can issue new equity amounting to 9.9 per cent of its existing stock without needing approval from its shareholders.
Sylvain Brunet, analyst at Exane BNP Paribas, said the depressed nature of Glencore’s share price over the past year meant issuing convertible debt “would make more sense than equity in our view”.
Analysts at Investec Securities said Glencore’s proposal to raise new equity “could be construed as a masterpiece of spin” designed to spook short selling funds that have bet against the company’s stock in recent months.
Glencore data
“Timing on the proposed capital raise appears to be at management’s volition, may never happen and may even take the form of a quasi-debt security,” they added. “This plan appears designed to paralyse the short sellers, and so far it appears to have worked.”
Whatever form the new equity takes, Mr Glasenberg made clear on Monday that management, which holds a combined stake of more than 20 per cent in Glencore, will not be diluted. Senior management, who became paper billionaires when Glencore listed four years ago, would be responsible for contributing up to $550m in the equity issuance.
The aim of Glencore’s debt reduction strategy is to preserve its investment grade credit rating. A downgrade of the Swiss-based company’s rating — Standard & Poor’s currently has it two notches above junk status — would hurt Glencore more than rivals. This is because its large trading business requires cheap finance to move millions of tonnes of oil, coal and copper around the world each day.

Mr Glasenberg said the debt reduction plan — which as well as equity issuance involves the suspension of Glencore’s dividend, asset sales and a halt to copper production at two African copper mines — had steeled the group balance sheet for “Armageddon”.
But analysts said the strategy will not completely shield Glencore from a further dip in commodity prices.
“We are encouraged by the fact that Glencore is finally taking actions to weather the ongoing storm, said Christopher LaFemina, analyst at Jefferies. “However, our analysis indicates that it is too early to buy Glencore shares as macro economic risks are high and the company still has significant financial leverage and operating risk.”

Peers within the industry said they were impressed by the decisiveness of Glencore’s actions.
Delegates at a Financial Times commodities summit in Singapore said it was characteristic of Mr Glasenberg to tackle problems both aggressively and creatively.
“Get it all done at once ... and show them you still know a thing or two about raising money,” said one commodity executive who has dealt with Mr Glasenberg in the past.