Investors seem to be shrugging off yet another corruption investigation into the dealings of mining and natural resource giant Glencore, run by its SA CEO, Ivan Glasenberg.
Last week, Glencore revealed that the US Commodity Futures Trading Commission (CFTC) is probing whether the company violated the Commodity Exchange Act or other rules through "corrupt practices".
The stock dropped 3.75% on the JSE on Friday before bouncing back 0.7% on Monday as the market digested the slim odds of a fine. But this latest revelation adds to the cloud of suspicion over a company whose aggressive trading culture means it has often courted regulatory skirmishes.
PODCAST: The growing power of class action lawsuits
Subscribe: iono.fm | Spotify | Apple Podcasts | Pocket Cast | Player.fm
As one mining analyst, speaking on condition of anonymity, puts it, Glencore is "just one of those companies where it is in their culture or DNA to sail close to the wind".
He adds: "People invest in these companies because of their willingness to take on more risk than their peers, which results in them achieving better returns than most. It attracts a certain kind of shareholder who is well aware of this culture."
The commodities probe follows revelations last July that the US department of justice (DOJ), citing the Foreign Corrupt Practices Act and US money-laundering statutes, ordered Glencore to hand over documents relating to its business in Nigeria, the Democratic Republic of Congo (DRC) and Venezuela dating back to 2007.
Back then, the share plummeted 14%, wiping R100bn from its market capitalisation.
In its statement last week, Glencore said the CFTC probe has "a similar scope in terms of subject matter as the current ongoing investigation by the DOJ".
Paul Gait, senior metals and mining analyst at Bernstein, says he thinks it will be very hard, if not impossible, to prove that Glencore deliberately moved the price of a commodity for its own benefit, given the opaque nature of these markets. If anything, he sees a strong degree of grandstanding in the latest probe from the regulators. "Everyone wants to land Moby Dick, it seems," he says.
From a monetary perspective, he doesn’t think this probe will hurt Glencore.
"The DOJ fine is already factored in many times over, so for there to be another impact given the ‘no double-dipping’ nature of enforcement seems unlikely," Gait says.
Either way, the spectre of the DOJ probe has hovered over Glencore’s stock for months. Over the past year, the stock is down 9.2% on the JSE, in contrast to large mining houses like Anglo American (up 29%) and BHP (up 27%).
But then again, Glencore always seems to be in the news for some scandal.
Before the DOJ probe, Glencore courted controversy for its past relationship with shadowy Israeli billionaire Dan Gertler, with whom it partnered in the DRC. Gertler was investigated for bribery by both US and UK authorities, and was accused of using his relationship with former president Joseph Kabila to score mining deals.
The commodities giant is also one of the oil traders under investigation over Brazil’s "Operation Car Wash", the largest corruption scandal in Latin America’s history, which relates to bribery involving the national oil company Petrobras.
Indeed, Marc Rich, who founded Glencore in 1974, was the subject of one of the largest tax evasion cases in US history, though pardoned by then president Bill Clinton in 2001. The company, seen as highly secretive, went public in 2011, listing in London, Hong Kong and SA.
Still, some analysts see it as a good time to buy, not least because Glencore has embarked on a $2bn share buyback programme that will boost its earnings per share. Overall, 19 out of 30 analysts recommend buying the stock, putting a one-year target price on Glencore of R67 — 15% above its current level.
This would be a boost for Glasenberg, who owns 8.4% of Glencore, making him the second-largest shareholder after Qatar’s sovereign wealth fund. Bloomberg’s billionaires index says Glasenberg is the 372nd-richest person in the world, with a fortune of $5.02bn, though the value of his stake in Glencore has fallen by $900m since June last year.
But while analysts are scrutinising the value, some fund managers are steering clear, for fear that one of the investigations could unearth deeper worries.
Another analyst, who asked not to be named, says there may be value in the share, but it is also somewhat toxic. "Simply because the manager would have to explain why they put investors’ funds into a company that was known to be under investigation," he says.
Liberum analyst Ben Davis says it’s difficult to speculate on the potential fallout in terms of fines and punitive actions from the commodities probe. "But clearly it’s another knock on its reputation to have another regulatory body investigating trading activities that were pretty murky to begin with," he says.
In the eyes of the market, it also increases the odds of Glencore stepping into another scandal sooner rather than later.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.