Traders are quoting prices for Glencore debt in a manner normally associated with junk bonds as the miner and commodity trading house attempts to restore investor confidence.
Prices for Glencore’s debt rebounded yesterday alongside the share price as investors debated its ability to manage its debt pile in the commodity downturn.
The group retains an
investment grade credit rating and its $36bn of outstanding bonds have up to now been bought and sold on the basis of their yield, which moves inversely to price.
But this week, dealers and investors say trading in the bonds moved to a cash basis, where prices are quoted in terms of cents on the dollar of face value. This form of pricing is
generally used for junk bonds, which have a higher risk of default.
Pressure on the company’s debt and equity has intensified as analysts consider the effect of falling raw materials prices and rising debt costs. The shares fell nearly 30 per cent on
Monday after an analyst at Investec warned that its equity might be worthless if commodity prices did not recover swiftly.
The company has said it retains “strong lines of credit and access to funding”. It said yesterday that Tony Hayward, chairman, had purchased £91,000 of stock, and also told a meeting
of investors the group had repurchased an unspecified amount of shortterm debt maturing next year, according to attendees.
Unsecured senior Glencore debt due in May 2016 had changed hands below 90 cents on the dollar on Tuesday, according to investors. Yesterday prices had rebounded to 97 cents
on the dollar.
A buyer of the debt should receive a 0.85 cent coupon in November, and a dollar of principal back in May.
One investor said “the company reasserted itself” yesterday. He said that market concerns at the value of Glencore equity had not yet been resolved, but it appears fears for its
creditworthiness may have been overdone.
Glencore’s shares, the worst performed in the FTSE 100 this year climbed 17 per cent on Tuesday after the company issued a statement saying it had “strong lines of credit and
access to funding”.
They rose a further 14.1 per cent yesterday to 91.55p although they remain below the 125p at which Glencore placed shares two weeks ago.
Dan McCrum and Gavin Jackson
