* Credit or Credibility? — GLEN shares are down >40% since the $2.5bn placing at
125p a few weeks ago. We believe this has been driven by concerns around
balance sheet and liquidity, reflected by both the rising CDS spreads and bond
yields. We believe the markets response is overdone and that the ratings agencies
are likely to take a more through-the-cycle view and therefore a downgrade to subinvestment
grade is not likely. We think that GLEN will promptly execute a
streaming deal and/or a stake sale in agriculture business as outlined at original
announcement which would be both credit and equity positive. Buy, PT £1.70/share.
* Potential Upside Surprise — We believe there is potential upside to the $2bn
target outlined from asset sales, including streaming and minority stake sale to
strategic investor(s) in the agricultural business. The level of interest is likely to be
high in both situations. We also think the group is not limited to just selling a
minority stake and if the need be, the entire agricultural marketing business could
be sold, which we value at ~$10.5bn.
* Stress Testing — Running $4,000/t copper price and all else at spot gives us a
sustainable adjusted EBITDA of ~$7.5bn and a net debt level of <$21bn, whereas
the sustainable EBITDA implies a net debt ceiling of $22.5bn at group’s target of <3
ND/EBITDA. Sustainable EBIT from marketing business at these prices still remains
healthy at ~$1.9-2.0bn, which we believe is an underlying achievable number just
from the logistics handling. We therefore don’t see a stressed balance sheet. The
group has >$12bn in liquidity, including $6.5bn of cash after the recent equity
placing, implying that the group can stay away from debt markets till 2017 and
potentially beyond if it could divest more than the $2bn target.
* Go Private and Re-structure? — We believe that in the event the equity market
continues to express its unwillingness to value the business fairly, the company
management should take the company private, whereby restructuring measures
can be taken easily and quickly, with a potential float of just the industrial business
occuring further down the track.