Glencore CDS Costs Soar On Poor Results
20 Agosto 2015 - 10:20AM
Dow Jones News
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 the end of Wednesday, investors had to pay $340,000 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 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 in assets, said the main
takeaway from Glencore's earnings call Wednesday 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," he said. "Investors
in metals and mining companies are paying particular attention to
what's happening in China," he said.
Glencore shares tumbled almost 10% Wednesday and bounced back
slightly Thursday. Shares in mining companies on the Stoxx Europe
600 are down 22% over the past three months, while energy stocks
are down 14%.
A Glencore spokesman wasn't able immediately to respond to a
request for comment.
Meanwhile, bond investors are demanding a higher yield to
compensate them for the risks of holding Glencore debt. The yield
on 10-year Glencore bonds was 5.9% Wednesday, Markit said, up by a
percentage point from early July. Yields rise as prices fall.
Around $64 million of Glencore 10-year bonds changed hands
Wednesday, according to trading platform MarketAxess Holdings Inc.,
more than five times the daily average so far this year.
Zoso Davies, a credit strategist at Barclays PLC, said credit
default swaps on Glencore are quoted at more distressed levels than
the non-investment-grade German industrial conglomerate
ThyssenKrupp AG, which is in the midst of restructuring its
business to focus on higher-value products and away from low-value
steel products.
One investor that has profited from Glencore's woes is Lansdowne
Partners, one of the world's biggest equity hedge funds, which has
raised its bet against the miner's shares over the past year. It
made a bet on 0.8% of Glencore's stock that shares would fall,
according to regulatory filings.
Lansdowne's flagship $10.7 billion Developed Markets fund has
its biggest bet on falling prices on the basic materials sector,
according to its latest letter to investors, which was reviewed by
The Wall Street Journal. Two of the fund's top five bets on falling
stock prices are in the sector, according to the letter.
A spokesman for Lansdowne declined to comment.
Other funds betting against Glencore's shares include Davidson
Kempner European Partners LLP, Passport Capital LLC, and Sunrise
Partners Limited Partnership, according to regulatory filings.
However, while overall hedge fund bets against Glencore have
risen since March, they are still slightly down from a year ago,
according to figures from Markit.
Write to Christopher Whittall at christopher.whittall@wsj.com
and Laurence Fletcher at laurence.fletcher@wsj.com
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(END) Dow Jones Newswires
August 20, 2015 09:05 ET (13:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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