Experts are beginning to warn of the dire financial impact across the mining and metals space if Glencore, one of the world's largest resource companies, is unable to control its skyrocketing debt load.
Hong Kong-listed shares of the Anglo–Swiss commodity giant crashed 27 percent on Tuesday, on the back of a 29 percent plunge in the company's London-listed shares in the previous session.
The fall was sparked by a widely-circulated note on Glencore released Monday by Investec that pointed to a debt base well above its peers and a lower-margin asset base. The brokerage also warned of a scenario in which earnings could collapse entirely as Glencore worked purely to repay debt, which would eliminate all shareholder value.
"Glencore is like Lehman Brothers, they have the most sophisticated trading desk when it comes to metals, coal, copper, iron ore. They're not just a company processing ore from the ground. If it was to unravel, that could have a global impact," Frank Holmes, CEO and chief investment officer at U.S. Global Investors, told CNBC on Tuesday.
Those debt fears weighed on Asia-Pacific commodity stocks on Tuesday, with Sydney-listed Rio Tinto and BHP Billiton tumbling 5 and 6 percent respectively within the first two hours of trade, while Singapore-listed Noble Group tanked 12 percent.
Glencore could be the name that drags the entire market down because it has an elevated leverage ratio in order to secure high returns, Holmes explained, adding that the firm also has many counterparty transactions, so there are concerns about a domino effect and the leverage of other parties.
A source close to Glencore, who preferred to remain anonymous because of the sensitivity of the situation, told CNBC that comparisons to the defunct Wall Street investment bank Lehman Brothers were "totally incorrect," adding that the two companies did not have the same business model or leverage.
The source noted that Glencore's balance sheet already had $10.5 billion of committed available liquidity before it announced its debt reduction plan, as well as $15.3 billion in committed credit facilities.
This month, the firm announced plans to cut its debt pile by $10 billion and protect its rating, including scrapping its dividend, selling assets and raising cash.