Glencore CDS Costs Soar On Poor Results – by Christopher Whittall and Laurence Fletcher (Wall Street Journal – August 20, 2015)

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Costs have tripled since last September as company’s earnings drivers trade at six-year lows

The price investors must pay to insure against a default on Glencore PLC’s debt ballooned after poor results from the commodities giant.

As of Thursday, investors had to pay $330,000 to insure against $10 million of Glencore debt for five years using credit default swaps, or CDS, according to data group Markit. That is more than three times the price of insuring against a default last September. At the end of last week, it cost $294,000.

The Swiss mining firm reported a sharp half-year loss on Wednesday amid a slump in commodity prices and a slowdown in the Chinese economy. Prices for copper and oil, two of Glencore’s earnings drivers, are trading at or near six-year lows.

Andrey Kuznetsov, a credit analyst at Hermes Investment Management, which oversees £30 billion ($47 billion) in assets, said the main takeaway from Glencore’s earnings call was that the company was caught off guard by the slowdown in China.

“They are involved in metals and trading, so you would expect them to have a better understanding of what’s happening in China. China has a big influence on all commodities,” Mr. Kuznetsov said. “Investors in metals and mining companies are paying particular attention to what’s happening in China.”

Glencore shares tumbled almost 10% Wednesday but recovered a bit to trade 2.5% higher on Thursday at 162.85 pence in London. Shares in mining companies on the Stoxx Europe 600 are down 22% over the past three months, while energy stocks are down 14%.

Glencore Chief Financial Officer Steve Kalmin said on Wednesday’s earnings call that he will do whatever is within his control to protect Glencore’s investment grade credit rating. “Even if we drop one notch, it isn’t a high cost to the company,” CEO Ivan Glasenberg said on the call. A spokesman from Glencore declined to comment Thursday.

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