World's Largest Commodity Trader Plummets To Three Year Low On Bribery Probe

Glencore Plc, the world's largest commodity trader, tumbled almost 9% to a three year low and was briefly halted following news that it was being investigated for bribery by U.K. authorities, deepening the company's long-running legal troubles.

The announcement by the UK's Serious Fraud Office adds to separate corruption probes that Glencore is facing in the U.S. and Brazil, which have sent the company's stock sliding in recent years. Without providing much detail, the SFO said it’s looking into suspicions of bribery by the company, its employees, agents and associated persons.

Glencore said it will cooperate with the probe, but didn’t provide any further details.

“This is an obvious negative for the Glencore investment case,” RBC analyst Tyler Broda wrote in a research note. “We believe this clearly will hamper sentiment in what remains a complex investment case for investors." He also said that the language of the U.K.’s investigation, albeit with limited detail, suggests it could be wider in scope. That potentially raises the penalty, if Glencore is found guilty or reaches a settlement.

As Bloomberg adds, The new probe also ramps up pressure on Glencore’s billionaire Chief Executive Officer Ivan Glasenberg. He told investors earlier this week to prepare for more leadership changes and hinted that his own departure may come sooner than previously anticipated.

The investigation will be also be a major test for the U.K. prosecutor, which has stumbled with some cases. Three Tesco Plc officials caught up in an accounting scandal were cleared after a pair of trials and the agency has dropped some high-profile probes into individuals at companies including Rolls-Royce Plc and GlaxoSmithKline Plc.

For trading powerhouse Glencore, which in recent years has emerged as the commodity equivalent of Deutsche Bank which appears to have involvement in virtually every single financial crime committed over the past two decades, the investigations have raised fundamental questions about how the business of commodities trading is conducted around the world, according to Bloomberg, as its traders have traditionally been willing to do business in many of the world’s most impoverished and corrupt countries. And they have long relied on agents - even more corrupt intermediaries who work on commission - to help them secure deals.

Last year, Bloomberg reported that the agency was preparing to open an investigation into Glencore and its work with Israeli billionaire Dan Gertler and former Democratic Republic of Congo President Joseph Kabila. Gertler and Kabila have been implicated in previous British and American bribery investigations. The U.S. imposed sanctions on Gertler in 2017, saying he’d used his friendship with Kabila to corruptly build his fortune.

Gertler and Glencore first invested together in a Congolese mine in 2007 and developed a close partnership over the years in the Mutanda and Katanga Mining copper and cobalt operations. While Glencore has cut its business relations with Gertler, it still must pay him royalties for the mines.

Glencore is also being investigated by the U.S. DOJ and Brazilian authorities in the Car Wash scandal. The company has also been subpoenaed by the Justice Department for documents relating to possible corruption and money laundering in Nigeria, the Democratic Republic of Congo and Venezuela. The U.S. Commodity Futures Trading Commission is also investigating the company for possible corrupt practices.

In response to the DoJ investigation, which the company said it’s cooperating with, Glencore set up a board committee to respond to a U.S. probe, that included chairman and former BP Plc Chief Executive Officer Tony Hayward.

"It’s more of the same, but now it’s getting attacked from a different angle,” said Hunter Hillcoat, a London-based analyst at Investec Securities Ltd. “Glencore was already trading at a discount because of the DoJ, but when this news comes out it gets whacked again.”

Glencore has lost over 20% of its value in 2019, dramatically underperforming the trading giants in its peer group, BHP, Rio Tinto and Angelo American.