Glencore is paying off a $10 billion credit card and its stock is flying

Bike stunt flying through air

Glencore, one of the world’s biggest commodities companies, said it would pay off $US10.2 billion (£6.7 billion) in debt by next year.

With the commodities market tanking, and real concerns over Chinese growth and industrial production, the company needed to address fears over its massive debt pile.

It has found six different ways to save money and pay back creditors:

  • Issue $US2.5 billion (£1.6 billion) in new shares
  • Save $US1.6 billion (£1 billion) by cancelling this year’s dividend
  • Save $US800 million(£526 million) by cancelling next year’s interim dividend
  • Sell $US2 billion (£1.3 billion) assets
  • Reduce long term loans by $US800 million (£526 million)
  • Cut capital expenditure costs by up to $US1 billion (£660 million)

Glencore’s senior managers are taking up 22% of the new shares, which at least shows their confidence in the company’s future prospects.

The market absolutely loves a responsible borrower. Here is Glencore stock today:

Glen Sept 7

Analyst Oliver O’Donnell at VSA capital said: “Financial leverage has been a key concern for investors and it is positive that GLEN is addressing the issue as its shares have fallen 60% since the start of May 2015. However, we remain cautious given the upcoming dilution.”

To put all this in perspective the company will still have debt “in the low $US20 billions” even if everything goes to plan.

Also, if you invested money in Glencore shares earlier this year, you’ll need a few more days of huge rises to get it back. The stock has been crushed in the last few months.

Glencore long term

Glencore is either underpriced or has further to fall. It depends whether you think the China sell-off and commodities rout is overdone. Either way, if you like volatility, Glencore is the ideal company stock for you.

Analysts at Accendo Markets said: “While the fact remains that commodities are still under immense pressure and those who dig them up are too, blue-chip stocks trading at a discount like Glencore’s provide an ideal vehicle for riding price swings of 10% or more – a view supported by an average daily trade volume just shy of 200M on Glencore stock since late August.”

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