Financial firms are extremely concerned about their heavy involvement with struggling commodity trader and mining company Glencore. Banks from across the world have approximately $100 billion invested into the company, and most of its trade finance deals are unsecured.
Many banks are very worried that the risks involved with Glencore are higher than they originally believed. There is also widespread concern that Glencore’s level of debt is much higher than expected. Some analysts suspect that Glencore’s debt may be up to three times greater than its reported adjusted net debt of almost $30 billion.
With the massive downturn of the global commodity market spurred by an economic slowdown in China, Glencore has suffered tremendously. Now banks might be paying the price. Financial firms are trying desperately to reduce their involvement with the company.
Glencore is deeply entrenched in debt, while its market value has fallen off substantially during the year because of decline in prices of commodities such as oil and copper, which are major building blocks for China.
The company says that it is doing everything it can to cut its debt. Glencore CEO Ivan Glasenberg has promised to cut debt by $10 billion, while also exposing more details regarding its financing methods in an attempt to calm down investors. Last week, Glasenberg stated that Glencore has $13.5 billion of available liquid capital, and he promises that Glencore will escape from debt even stronger than it once was.
While shares for Glencore have more than doubled in value since their all-time low on September 28th, the stock is still down by over 50% for the year.
For now, with the commodity market down, banks will be thinking very carefully before getting involved with companies that are heavily dependent on commodity prices.
Meanwhile, Glencore has argued that its trade financing deals from financial firms are of very high quality, and the company has insisted that its likelihood of default is very low.
However, the numbers do not appear positive. Glencore currently owes $50 billion in committed credit lines $35 billion in bonds, $9 billion in loans, $8 billion in available drawings and $1 billion in secured borrowings. Glencore only has $90 billion in property, plants, equipment and inventories.
Over 60 banks are reportedly invested in Glencore.