Nerves of steel: Glencore’s brave call in battle with short-sellers (Reuters U.K. – March 18, 2016)

March 18 (IFR) – Markets were panicking about Glencore on the morning of January 14. A rout in metals, agricultural and energy prices had hit the commodity trading company hard, making it a target for short-sellers who were betting on its collapse.

Glencore shares started trading that morning at 70.83p, their lowest open ever and down almost 90% from its IPO less than five years earlier. Its bonds with just a year to maturity were yielding over 10%, an unmistakeable sign of stress, while the cost of five-year default protection was quoted above 1,000bp for the first time since October 2008.

“People were starting to see ghosts,” said one banker who has closely worked with the company for a decade. “They thought Glencore was going bankrupt.”

From the outside, there looked to be plenty of reason to worry. Lured by surging commodity prices and growing demand from China, the company had gorged on cheap debt in the late 2000s, doubling its borrowings at a time when much of the corporate world was cutting back.

A merger with miner Xstrata in 2013, just as commodity prices were peaking, left the company highly leveraged and owing more than US$55bn to its creditors. As commodity prices took another leg down last summer, the storm clouds growing over the company became too large to ignore.

Glencore hastily put together a US$10.2bn debt reduction plan, but that did little to settle investor nerves. Short-sellers were circling, investors were fleeing. Many thought Glencore’s days were numbered.

But Ivan Glasenberg was not overly concerned. Glencore’s chief executive had first made a name for himself as a champion speed-walker, a sport whose main rule is to always keep one foot on the ground. While Glencore’s debt looked worrying from the outside, Glasenberg remained rooted, confident the company had the full backing of its banks.

Glencore was, to put it mildly, one of their most important clients. In a good year it generated hundreds of millions in revenue for the banks through interest on its loans, bond underwriting fees, advisory work, trading and letters of credit. Glasenberg knew they would stand behind the company during its time of need: he had an ace up his sleeve, and he was ready to use it.

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