What the Glencore collapse says about world markets | afr.com

Before you jump on the Glencore bankruptcy bandwagon consider these perspectives from an investment banker, a debt market investor, an equity trading desk veteran, a credit rating analyst, a hedge fund manager and, believe it or not, the company itself.But first, here is the controversial view of the world’s biggest commodities trader from the analyst at Investec Bank who triggered a 30 per cent plunge in the company’s share price on Monday.Investec’s Hunter Hillcoat said in a note to clients: “At current spot prices, all else being the same, Glencore’s equity value is zero”, according to The Financial Times.He went on to say that “using a PE-based approach to evaluate equity value going forward, in proportion to debt, we note that the heavily indebted companies could see almost all equity value eliminated under spot conditions, leaving nothing for shareholders”, according to Zerohedge.In other words, the total equity on the Glencore balance sheet of $US47.45billion is worthless.While that is a scary conclusion for Glencore shareholders to digest, it was Hillcoat’s statements in relation to Glencore’s readily marketable inventories or RMI, which really put the cat amongst the pigeons.RMI is the physical commodities trading inventory owned by Glencore and used in its day-to-day business of trading commodities on global exchanges and over the counter. The RMI is worth about $US18billion.Hillcoat gives Glencore no credit for something which the company and credit ratings agencies regard as being as good as cash.

Source: What the Glencore collapse says about world markets | afr.com

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