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December 22, 2008
Glencore International AG, the world’s largest commodities trader, said cash and undrawn amounts under its committed bank facilities rose to $3.5 billion after it reduced the amount of funds it needs for continuing operations.
The figure is continuing to climb on “lower working capital requirements,” Baar, Switzerland-based Glencore said in a statement e-mailed to Bloomberg today. The amount is also up from the increased minimum “liquidity” target of $3 billion that the company stated on Nov. 12.
Glencore, which is controlled by its employees, trades oil, metals and agricultural commodities and owns mines and smelters. It also has a 34 percent stake in copper producer Xstrata Plc. Dealers are asking for upfront payment Glencore’s credit default swaps, indicating that some have concerns the company may fail to meet debt repayments.
The swaps cost 4.8 million euros ($6 million) upfront and 500,000 euros a year to insure 10 million euros of debt for five years. They cost 155,000 euros a year in July, according to data compiled by Bloomberg.
The swaps linked to other mining and metals companies have also increased. Contracts for steelmaker ArcelorMittal have risen to 1,340 basis points, from 97 basis points a year ago. Swaps for mining company Rio Tinto Group advanced to 1,025 points, from 95 basis points a year earlier.
Debt Fears
Xstrata fell 54.5 pence, or 8.7 percent, to 575 pence by the close of London trading. The shares have plunged 84 percent this year valuing the Zug, Switzerland-based company at 5.5 billion pounds ($8 billion).
“To mark Xstrata a sell on fears over debt default can only be the case if investors believe that 2010 will be worse than now until the end of 2009,” Michael Rawlinson, head of mining resources and energy at Liberum Capital Ltd. in London, wrote today in a note.
Glencore, led by Chief Executive Officer Ivan Glasenberg, said last month that third-quarter profit gained 26 percent to $1.48 billion from a year earlier. It today reiterated it had enough financing to “comfortably” cover debt maturing in the next 12 months and it had “no requirement or intention” to reduce its shareholding in Xstrata.
“The company’s current available liquidity resources are sufficient to repay these loans in full if required,” Glencore said in the statement.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. The contracts rise as investor confidence deteriorates and fall as it improves.
Source:http://www.bloomberg.com/apps/news?