Futures & Commodities

Glencore shares financing details with investors

Glencore has $50B in financing: Source
Defending Glencore
Glencore CEO down to last billion

In an hour and a half long meeting Wednesday afternoon in London, officials at Glencore sought to reassure credit investors that its financing was strong after a market rout earlier this week, according to people with knowledge of the gathering.

Speaking to some 40 debt investors, including hedge funds and mutual funds, in a conference room at the Connaught hotel, Glencore's head of capital markets, Carlos Perezagua, and head of investor relations, Paul Smith, argued that their company's balance sheet was strong and its liquidity, or cash, position, very stable, said one of the knowledgeable people.

A spokesman for Glencore declined to comment.

An employee walks past coal washing flotation cells, manufactured by Jameson Cells, a unit of Glencore Xstrata
Wall Street presents the case for buying Glencore
Should you fear a ‘Glencore’ moment?
Bad quarter for stocks; dire one for commodities
Europe ends sharply higher as supermarkets, Glencore soar

Among other things, the person with knowledge of the meeting said, the Glencore officials pointed out that their company had access to some $50 billion in available letter-of-credit bank financing used to back cargoes in transit in their trading business. (For instance, as this person described, if Glencore were shipping a purchase of crude oil to a trading partner overseas, the bank letter would guarantee the financial value of that cargo until it arrived.)

Only a fraction of that financing is currently in use, the officials added, and a letter-of-credit financing line had never been pulled, even during the market turmoil of 2008, this person added.

The Glencore officials also spoke of their roughly $15 billion revolving credit facility, this person said, pointing out that even if the company's debt is downgraded by rating agencies to "junk" status — something the market has been fearful of — the interest rate attached to a key portion of that facility would rise only minimally.

Banks and investors have been on high alert about Glencore since Monday, when a negative research report and apparently unfounded rumors of a liquidity crisis circulated, pushing shares in London to an all-time low. Amid that swoon, major U.S. lenders held high-level meetings with internal risk managers to assess their exposure to any potential financing crisis at Glencore, say people who have participated in the meetings, who added that the banks were comfortable with their positions—and Glencore's.