Hopes of Glencore Takeover Boost ENRC Shares

Monday, 13 Jun 2011 12:05 AM

 

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Shares in Kazakh miner ENRC jumped almost 8 percent on Monday after a newspaper report that commodities trader Glencore was considering a 12 billion pound ($19.5 billion) takeover bid.

At around 1030 GMT on Monday, shares in ENRC, hit last week by a bitter boardroom row over governance, were up 6.1 percent at 787 pence, outperforming a 0.3 percent rise for the sector.

Glencore shares were up 1.1 percent.

Quoting a source with knowledge of the discussions, the Sunday Times newspaper said Glencore Chief Executive Ivan Glasenberg had held talks in recent weeks with ENRC's three founders and key shareholders — Alexander Mashkevitch, Patokh Chodiev and Alijan Ibragimov. The trio control some 45 percent of ENRC's shares.

It said both sides were keen to do a deal.

ENRC, with a free float of less than 20 percent which tends to exacerbate share moves, has long been named as a potential target for Glencore.

The commodities trader has always had an opportunistic approach to deals and could be tempted by ENRC's undervalued asset portfolio and the heavy fall in its shares, down 25 percent since the start of the year and battered in recent days by a boardroom dispute that has pitted its independent directors against its founders.

Two independent directors have been ousted by top shareholders and at least one other is considering tendering his resignation, according to a source familiar with the matter last week.

ENRC, which trades at a hefty 15 percent discount to the sector on a P/E basis, hit 741 pence on Friday, its lowest since August 2009. At that level, the company would be worth 9.5 billion pounds.

TOO SOON

But one industry source said it was simply too soon for Glencore to be seriously considering a move on a company as large as ENRC.

It would have had to disclose plans in its listing prospectus and would also struggle to raise money to pay for the deal, as it cannot issue new shares for six months.

"We would see an all-out cash bid near-term from Glencore for ENRC as highly unlikely, and the Swiss-based group issuing more equity is not an option for at least six months," said Miriam Hehir, credit research analyst, RBC Capital Markets.

"Glencore highly values its investment-grade credit ratings, which help to underpin its profitable marketing business, and we do not believe it would jeopardize these ratings with an ENRC bid," she added.

Glencore shares are trading "under water", or below their issue price of 530 pence.

ENRC, which launched a three-month review last week, is under growing pressure to move quickly to resolve its woes.

Rating agency Moody's said in a note on Monday that ENRC was now struggling with "reputational and credibility" issues that could affect its ability to raise money for future projects.

"A prolonged period without adequate controls would put pressure on the company's ratings," Moody's said. It has a Ba2 "junk" rating on ENRC, with a stable outlook.

Industry analysts have suggested Glencore could take a stake in ENRC rather than buy the entire company, potentially taking shares owned by rival Kazakhmys which has said it is considering all options for its 26 percent stake.

Shares in Kazakhmys were up 2.7 percent. Separately, Kazakhmys said on Monday it had agreed a $1.5 billion loan from China Development Bank to help develop a large copper deposit in eastern Kazakhstan, a move that will allow it to avoid selling a stake in the project.

© 2014 Thomson/Reuters. All rights reserved.

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