The delay couldn’t last much longer. A full week had passed since Glencore said it would raise $2.5bn (£1.6bn), an interval in which the modest rally in the share price had evaporated. In early trading on Tuesday, shares in the mining-cum-trading house hit a new low of 118p. It was time to get on with the job of raising the cash.
The result is a placing of 1.3bn shares, equivalent to almost 10% of the current equity base. Chief executive Ivan Glasenberg and his executive colleagues are buying 22% of the new shares – at a cost of a shade over $500m – a strong display of confidence, and an even stronger display of personal wealth.
Is $2.5bn enough though? The stock market’s immediate reaction, one suspects, will be to push Glencore’s shares higher because one small uncertainty has been removed. Yet two big factors haven’t changed.
The first is Glencore’s vulnerability to more falls in the prices of copper and coal. The former has shown signs of stability in the last week, partly because Glencore itself is shutting a couple of mines, but coal shows no hint (yet) of reaching a trough. After the fundraising, Glencore is less indebted than it was but, remember, the starting point was borrowings of $30bn.
The second factor can’t be measured so precisely. It is the damage to Glasenberg’s reputation for reading the market. Last year’s $1bn share buyback – at an average of roughly 300p a share versus 128p now – was plainly a mistake, born of over-optimism. Yet even last month Glasenberg held the interim dividend, before being bounced by shareholders into cancelling future payments as part of the $10bn debt-reduction plan.
In other words, Glencore is the first big London-listed miner in the commodities downturn to have to raise equity to reinforce its balance sheet. It’s quite a come-down for a company that used to boast its trading division offered protection in all weathers.
Treasury should stop meddling
Robert Chote, now starting his second term as head of the Office for Budget Responsibility, is a robust individual. As he says, he is someone quite capable of telling any irritating or meddling Treasury official to buzz off.
This is reassuring, and, as Chote also pointed out on Tuesday, he annoyed the chancellor more than once in his first term with his descriptions of government spending plans. Thus one can understand why Chote preferred to play down the row over an email from a Treasury official that appeared to break the rule that the government should respect the OBR’s independence by not interfering in its work.
The rest of us, though, should not be so relaxed. One passage in that email, obtained by The Times, jars horribly. “It won’t come as a surprise, I’m sure, but we haven’t strictly stuck to the ‘factual changes only’ requests so we’re giving you our full download and suggestions,” it read.
The tone, admittedly, might be said to convey more hope than expectation that the OBR will be swayed. Yet it also seems to suggest that Treasury officials routinely attempt to blur the line between facts and opinion in their correspondence with the OBR. If that is correct, it’s time to stop the practice before matters turn uglier.
The author is said to be only a junior Treasury official but Andrew Tyrie’s select committee is right to take this matter seriously by delving deeper into correspondence before last year’s autumn statement. The OBR is one of George Osborne’s best creations. Its forecasts can be wrong but outsiders need to know they made without interference.
The chancellor, one hopes, will grasp the point. A stiff warning to officials, reminding them that they do not have a licence to try their luck in dealings with the OBR, would be in order.
Hastings may struggle to keep up the pace
Roll up, roll up, Goldman Sachs would like to sell a few shares in an insurance company at five times the price it paid last year. This does not seem an obvious bargain.
Hastings, to be fair, has improved at a steady gallop since Goldman paid £150m for a stake of just under 50% in January last year. It has continued to grow customers and profits at a compound rate of 22%; and in Gary Hoffman, who cleared up the wreckage at Northern Rock, it has a respected chief executive. Yet the idea that 100% of Hastings, even after raising £180m of cash, could now be worth as much as £1.5bn stretches credibility.
The company offers many reasons why its underwriting, pricing and fraud-detection is better than rivals’. Some boasts may even be fair since Hastings is clearly doing something right to gather 5.5% of the market for private car insurance and make operating profits of £106m last year.
But one thing every investor knows about car insurance is that very few companies grow at 22% for ever. The last exciting prospect was esure, which is still below the price it floated at in 2013.
Goldman and Hastings’ founders will sell only a quarter of their stakes, so this is not a stampede for the exit. But caution is required on pricing given the industry’s unreliable record. Forget £1.5bn; about £1.2bn looks more like it.
