The package involves raising $2.5bn in equity capital; suspending dividend payments for a year; reducing working capital by $1.5bn; selling off $2bn of assets; shrinking its $4bn long-term loan book (who knew it had one?); and trimming capital spending by a further $500m-$1bn. You might think this kind of surprise announcement would spark a sell-off. On the contrary, Glencore's stock rose 7 per cent on the day.
There is a tempting parallel with Xstrata, which was bought by Glencore - its major shareholder - in 2013. During the banking crisis Anglo-Swiss coal miner Xstrata was one of the first FTSE 100 companies to resort to a rescue rights issue to pay down debt. The announcement in January 2009 paved the way for a recovery in confidence and a tripling of Xstrata's share price before the takeover. Commodity prices have now plunged to levels last seen in 2008-09, bringing mining profits down with them and sparking similar worries about spiralling ratios of debt to income. Is this Glencore's Xstrata moment? Will the announcement bring other miners to the market? Is this the darkest hour before dawn?
But the comparison is somewhat misleading. Xstrata's £4bn cash call was on a gargantuan scale, expanding the miner's equity base by roughly two-thirds. In the depths of a bear market, the shares were offered at a distressed 66 per cent discount. Glencore's recovery plan, on the other hand, is long on commitments to cut spending and short on requests for money - the corporate equivalent of George Osborne's fiscal strategy.
Mr Glasenberg is proposing expanding shareholder funds by less than 10 per cent. Under the terms of a special resolution agreed at the annual meeting in May, the company is allowed to do this without giving shareholders their usual pre-emption rights. The result had not been announced at the time of writing, but will presumably be a quick, cosy and mildly dilutive placing of shares with a few major investors, including the management team. The obvious questions are a) whether the proposed capital cuts are achievable, and b) whether they and the placing will be sufficient to put worries about Glencore's leverage to bed.
Mr Glasenberg has come under pressure on two fronts. Since unveiling disappointing half-year numbers last month, he has been on a shareholder roadshow. It has evidently been made clear that comments about nasty hedge funds shorting the stock are no substitute for action. Last week's widely reported research note from Bank of America Merrill Lynch warning that the major miners could need $50bn-$60bn in fresh equity may have been another catalyst.
Credit rating agencies form the other front. On 3 September Standard & Poor's cut its outlook on Glencore's debt from stable to negative - a move that prefigures a downgrade. S&P would only have to reduce its rating twice for the group to lose its 'investment-grade' status. This matters more for Glencore than other miners because its marketing division acts as a counterparty. Some clients would not be allowed to trade with Glencore if its balance sheet did not have the agencies' stamp of approval.
I am relieved to report that this magazine has been wary of recommending Glencore's shares ever since they were floated in 2011, infamously marking the top of the commodity cycle. The reason has not been that we have been bearish on the materials Glencore mines, but that the company's marketing division - which accounts for half of profit - is a black box.
It makes money through logistics (transporting commodities), arbitrage (buying them in one place or one time period and selling them simultaneously in another) and proprietary trading (taking bets on commodities). It is hard to anticipate the performance of these in advance, so investors have come to rely on Mr Glasenberg's guidance. This has been unreliable of late. In March he infamously said the division would make $2.7bn-$3.7bn "no matter what commodity prices are doing", but was forced to reduce that guidance to $2.5bn-$2.6bn last month after a poor first half.
Ultimately, the success or failure of Glencore's recovery plan depends heavily on cash flows from the marketing division. But these are opaque and seemingly volatile - hardly the ideal backing for a large debt pile. If there is any further slippage here Mr Glasenberg will have to top up on equity again.
