"Doomsday" Cometh For Glencore: Mining Giant's Default Risk Just Exploded Higher

Tyler Durden's picture

Two weeks ago, in a stunning development, Glencore officially folded the towel on not only its global expansion ambitions and its bullish commodity case, but admitted it was far too levered for the current recession in commodity prices. As a result, Glencore CEO Ivan Glasenberg unveiled a $10 billion deleveraging plan in order to prepare for a "doomsday scenario" for commodity prices.

Sure enough, the company's CDS which Zero Hedge had said back in early 2014 with "Is This The Cheapest (And Most Levered) Way To Play The Chinese Credit-Commodity Crunch?" was the best way to bet against the Chinese blow up currently in progress, tumbled from a level in the mid-400s to 300 bps on hopes Glencore would be able to successfully delever to a 2x net debt level.

The first crack in these hopes emerged just a few days after the company's deleveraging announcement when Moody's downgraded Glencore Baa2 outlook to negative, despite the proposed equity raise, asset sales and capex mothballing.

In doing so Moody's merely confirmed our skepticism from September 7 when we said this Glencore's action "merely reinforces our thesis and allows all those who missed the initial blow out in GLEN credit default swaps to put the trade on... at levels not seen since about a month ago. Because as a result of today's asset-stripping and equity-raising activity, Glencore is now a that much better levered bet on China's economy in a broad sense, and copper pricing in a narrow one."

Our conclusion from the Monday two weeks ago, when GLEN CDS was trading back down at 300 bps:

"with every passing week that neither China's economy rebound nor copper reverses recent losses, expect GLEN CDS to accelerate its widening once again, and overtake its recent multi-year high level of 445 bps in very short notice."

Fast forward to this morning when not only did Glencore stock drop below 100p for the first time ever as we noted in our overnight wrap, but according to CMA, the shock that the company's deleveraging will not be enough is now shaking the entire capital structure, and, lo and behold, as of moments ago, GLEN CDS just soared by 74 bps to a whopping 464 bps - the widest since January 2012, and hitting our target in just two weeks.

We expect this CDS blowout to continue.

What's worse, if the company is downgraded from investment grade to junk, watch as the "commodity Lehman" scenario for Glencore, which much more than a simple copper miner just happens to be one of the world's biggest commodity trading desks, comes full cricle leading to waterfall collateral liquidations and counterparty freeze-outs as suddenly the world is reminded that there is a vast difference between a real and a rehypothecated commodity, and that all collateral rehypothecation chains are only as strong as the weakest counterparty!

Incidentally, today's Glencore implosion is a far greater risk to the capital markets and the global economy than Volkswagen: a few executive resignations, a few bribes to US Congress, and the scandal will be promptly snuffed.

For Glencore, however, which suddenly the entire world realizes is - as we said in March 2014 - the way to trade China, it may now be too late.

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SethDealer's picture

the will get bailed out

Truther's picture

Yellen will be there in no time. Fanning worthless $$ everywhere.

Hype Alert's picture

CDS?  Did Markit remove ABX CMBX from public viewing?

Haus-Targaryen's picture

Lets see if Mr. Yellen lets Glencore fail.  

I think this the only relevant decision/factor left in this Glencore fiasco.    

HardlyZero's picture

Bring in the Tangible "fluffers" to fan some cash and raise the expectations.

MalteseFalcon's picture


Glencore takes things out of the earth.

The earth is finite.

We're rapidly running out of the things Glencore takes out of the earth.

Therefore the things Glencore takes out of the earth will become rare and valuable.


Jumbotron's picture

Ahhh...young grasshopper.  You forget most important of points.  You only make profit if people can afford to buy.

This is not so now.

Here ends your lesson.

Pickleton's picture

"We're rapidly running out of the things XX takes out of the earth."


Mmm, no.  Gaia worshipper propaganda.




Money Counterfeiter's picture
Money Counterfeiter (not verified) Truther Sep 22, 2015 10:53 AM

Print you MF's

Watson's picture

I disagree.

Bailouts are political poison, Glencore isn't a bank, and AFAIK doesn't have deposits from Joe Public.

But as stated elsewhere, may not fail to counterparties simply because taken over by Cargill before things get that bad.


Cosmicserpent's picture

Too small to be bailed out. They will sliced, diced and digested like Lehman and B-Stearn. The squid is hungry.

junction's picture

It is not just Glencore at risk, but Rio Tinto, Vale, BHP and the Oppenheimeer family's Stemcor mining giant.  If Stemcor goes belly up, no loss considering UK MP Margaret Hodge is a family member.  The same Margaret Hodge who moved heaven and earth in the early 1990s to cover up the horrendous pedophile ring that operated in the London Borough of Islington, which she ran.  The same Margaret Hodge who, after obtaining a seat in the House of Commons following the sudden death of a long term MP, backed Tony Blair for PM.  Blair, incidentally, also became MP only after the Labor favorite, John Smith, died of a heart attack in an ambulance taking him to the hospital.

agstacks's picture

all these mining and commodity resources will soon be availabe for pennies on the dollar it seems. 

Jumbotron's picture

I CAN'T wait !!



Lady Jessica's picture

I'm confused.  This would suggest there are some remnants of a properly functioning market.

Offthebeach's picture

Should be no problems. Bernanke/Yellen have provided scientifically, perfect luqidiity.



Economists. Doctoral degreed. Bunch of'm. Got computers too. And graphs. Lots and lots of graphs.

Nothing to see folks, move along, move along.

clade7's picture

Doomsday!  Piss in my hat! 

Ive been saving up money for a brand new 1999 Chevy Prizm!

I think I'll go down to the LCS and buy one of those 1oz gold buffalo nickels and a brace of silver dollars instead, seeings how I wont need to go to work anyway soon from the looks of it...may as well get some beer and smokes on the way home...

big rock's picture

.......Cargill is licking its chops.

RadioactiveRant's picture

Its starting to look like everything Tony Haywood touches turns to shit.

Dr. Engali's picture

Quick, get Jami on the phone. The tax payers want to pay him 10o billion dollars so he can buy Glencore for 1 billion and save us from doom.

HardlyZero's picture

In mining terms...and in the boardroom...the "Crack of Doom".

omrizario's picture

Too big to... not print money to save it.

Kina's picture

When capital wants to go home to mommy all things crash.

falak pema's picture

The dominoes  aligned of capitalism gone mad.

When corruption is the middle name of every corporation that wants to MAXIMISE market value by "doing whatever it takes"...N'est ce pas Mr Draghi, ex-hit man for the Squid in Greece and with Monte PAschi, now head print man of EU ?

We've been playing this game since Reaganomics/Thatcherism began. NWO outsouricng making hyperconsumerism and cheap labour leveraging the source of Oligarchy wealth world wide.

Ha! Ali Baba and the 40 thieves now coming to every theatre in the world.

And, its not just in finance and commodities that we see the corruption rampant; now its uber products like VW diesel engine. The pride of Deutschland uber alles!

Holy jumping catfish !


q99x2's picture

Oops there goes another waterbug. 7 years of hoping for a crash has tired me out. Now I can only try to be in the right place at the right time.

Conax's picture

Once they default and the asset auctions begin, there will be Jamie,  bringing home the bacon for a fistful of confetti.

The mines are key to the manipulation going forward.

Fukushima Fricassee's picture
Fukushima Fricassee (not verified) Sep 22, 2015 12:32 PM

Fucking Yellen and all CB mother fuckers can die.

Secret Weapon's picture

This is going to plan.  Bankrupt the mining companies, buy them pennies on the dollar, crash the dollar and make cazy profits in metals.  Simple. 

Element's picture



"commodity Lehman" scenario for Glencore, which much more than a simple copper miner just happens to be one of the world's biggest commodity trading desks,

Come off it.  It's not a bloody trading desk that matters to commodities.  It's the ability to mine and deliver to a customer, and the ability for the customer to 'pay' in equivalent agreed credit trinkets, which matters to commodities markets.  Miners and customers could figure out a replacement mechanism over Tea and Lamingtons in about 20 minutes. 

And thus cut out the parasitic middle men and riggers of markets as well, i.e traders.

Magooo's picture

See surname "Glasenberg"  --- definitely bound for a bailout