Short sellers eye Anglo American despite “radical restructuring”
Hedge funds beefed up their positions in Anglo American, even after the miner unveiled a “radical restructuring” which it hopes will enable it to stay afloat amid a prolonged rout in the price of iron ore and other metals.
Short-selling interest in Anglo American ticked up from 6.4 to 6.5 percentage of shares on loan after Anglo announced it would scrap its dividend for the second half of 2015 and 2016, and embark upon more cost cuts.
It’s risen from 5.8 per cent of shares outstanding on loan at the beginning of this month, and is currently about double the average on Britain's blue-chip index.
Short sellers borrow shares from other investors to make a profit when the price falls.
Plunging commodity prices have heaped pressure on mining companies' credit ratings and dividends, leading to a number of business restructurings.
However, Anglo’s higher-cost iron ore assets, loss-making platinum assets and slower than expected progress with its restructuring plans means it’s seen as more vulnerable than rivals such as Rio Tinto and BHP Billiton.
Read more: Anglo American share price haemorrhages for second consecutive day
Anglo is also tipped to enter the 90 per cent club which is made up of members of the FTSE all share members who have lost more than 90 per cent of their value over the last five years, according to options trading platform Banc De Binary.
Separately, Standard & Poor’s (S&P) today warned that it could follow fellow credit rating agencies Moody’s and Fitch which have downgraded Anglo.
S&P said Anglo could be relegated to junk status within the next two months if commodity prices fail to recover, and unless it sees “sufficiently predictable benefits” from the company’s rescue plan.
Nevertheless, it noted that the company has a strong liquidity position, which includes $7bn in cash and $7bn in bank lines, and this should help it withstand the commodity price rout.