Glencore said that the Department of Justice requested documents on July 3 about its compliance with corruption and money-laundering laws. Depending on the outcome, the film may have a good sequel. The company’s founder, Marc Rich, is an American-Swiss commodities trader on the run from the law, according to The Economist.
The company that trafficks in mining and trading has seen better days. Its market value dropped by 8.5 percent, which is $4.3 billion, once news broke that the Department of Justice wanted over a decade of documents related to activities in three countries, the Democratic Republic of Congo, Nigeria and Venezuela. Its shares had already lagged its peers this year as an indirect result of American sanctions, The Economist reports.
The probe comes weeks after Glencore resumed royalty payments to Dan Gertler, an Israeli billionaire sanctioned by the American government because of what it called “corrupt mining and oil deals” in the Congo, according to The Economist, which added that the billionaire denies any wrongdoing. It is unsure if the events have any relation.
The Department of Justice will probably focus on oil trading when it looks at Glencore’s activities in Nigeria and Venezuela, though The Economist does not know what would have caused these suspicions. In Venezuela, Glencore was recently named as one of 40 co-defendants in a lawsuit that alleges oil-trading firms funnelled bribes to corrupt officials, The Economist reports.
Glencore is known for taking big risks, which backfired when commodities crashed in 2013-16, though the company can sometimes wind up being rewarded in the long run when things start changing. It becomes difficult to keep up investments when the company has to sell people on the fact that the company works with questionable countries, according to The Economist.
It is also not clear whether long-term investors or speculators dumped Glencore stock, though if it leads to no further action, the probe could have consequences, The Economist reports. If it scares off banks and investors, Glencore’s cost of capital will rise.
Glencore bought back about $1 billion of its shares in response to the probe. The share buyback program is supposed to run to the end of the year and roll out in a two-step process. Financial Times reports that ahead of half year results in early August, Citigroup will buy £350 million of shares on behalf of the company. The repurchases then will be undertaken in accordance with directions from Glencore. Financial Times reports that analysts said the buyback signaled management’s confidence in its underlying business and the value of its shares.
“This serves to provide a message to the market that management sees value in the shares at current level, at a time where perceived external uncertainty is high, and where impact from the Department of Justice subpoena specifically is difficult to judge,” RBC Capital Markets’s Tyler Broda said.
By: Michael Eric Rosenthal