Glencore Implodes: Stock Plunges Most Ever, CDS Blow Out To Record Up On Equity Wipeout Fears

Tyler Durden's picture


* * *

Just last Thursday we asked whether Goldman was "preparing to sacrifice the next Lehman", by which of course we meant the world's largest commodity trading counterparty, Baar, Switzerland-based Glencore which just two weeks ago unveiled an unprecedented "doomsday" capital raising and deleveraging plan which, in retrospect, was not enough.

The punchline of Goldman's report was that if commodity prices drop 5%, or even stay where they are, then Glencore's investment grade rating - the most critical foundation of its entire trading operation where a downgrade to junk would launch a collateral and margin-call waterfall cascade a la AIG - would be lost. From Goldman:

Glencore’s trading business relies heavily on short-term credit to finance commodity deals and its financing costs would increase if it were to lose its Investment Grade credit rating. In addition, it could even lose some counterparties due to increased counterparty risk.

As we added on Thursday, "what a junking of Glencore would do, is start a collateral demand waterfall cascade that the cash-strapped company simply would not be able to sustain." So having laid out the strawman, Goldman next, very conveniently, explains just what would take for the Investment Grade trap to slam shut: "it would only take a c.5% fall in spot commodities prices for concerns about its credit rating to resurface."

Of course, Glencore's leverage to commodity prices was first explained in our March 2014 post, in which we said buying Glencore CDS is the best and easiest way to bet on a Chinese credit and commodity crunch.

Fast forward to Monday morning when those who bought into Glencore's equity offering at 125p less than two weeks ago on September 16, are already down a whopping 43% (we won't even bother calculating the loss since the company's 2011 IPO), following the biggest daily drop in Glencore history, with the stock mauled some 27% at last check...

... on the heels of a note from Investec which said nothing Zero Hedge readers did not already know, but which is spooking everyone else into realizing that the commodity trading Titanic may well be sinking.

In the note Investec notes that "using a PE-based approach to evaluate equity value going forward, in proportion to debt, we note that the heavily indebted companies (GLEN, AAL) could see almost all equity value eliminated under spot conditions, leaving nothing for shareholders.... GLEN recent restructuring may prove just the start for the majors if spot prices prevail - this supports our concern that we are still a distance from the "value point" in the sector.

In other words, even if commodity prices remain unchanged, GLEN equity could be doughnut. If commodity prices continue dropping, then - well - just read out prediction from last year.

It also means that bondholders are next in line to hold the equity after a debt-for-equity, which has also pushed Glencore's bonds to record lows, with the GLEN €1.25b notes due March 2021 dropping three cents to 78 cents on euro, while the €750m bonds due March 2025 decline four cents to 67 cents. Both are at record lows.

If and when the bondholders realize a bankruptcy would leave them with negative enterprise value when netting out all the margin calls, we wouldn't be surprised to see bonds trading below 50 in the coming months if not weeks.

Meanwhile, those who listened to our reco to buy Glencore CDS at 170 bps in March 2014 can take the rest of the year off. As of this moment, GLEN Credit Default Swap were pushing on 600 bps, 4 times wider, and on pace to take out the 2011 liquidity crunch highs. After that, it's smooth sailing to all time wides and the start of a self-fulfilling prophecy which leads to the Companys's IG downgrade and the collapse of trillions in derivative notionals as what may be the trading desk of the biggest commodity counterparty quietly goes out of business.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Cognitive Dissonance's picture

I prefer playing FanDuel to the market. FanDuel hasn't been infested with HFT.......yet. /s

Antifaschistische's picture

Maybe it's just ironic that their website is a giant hole..


Captain Debtcrash's picture
Captain Debtcrash (not verified) Antifaschistische Sep 28, 2015 8:14 AM

Glencore is one of the many candidates for a critical mass default cirdling the drain. 

Bernoulli's picture

Bounced off nicely off 66.67p for now. That's a bit crazy.

Gmpx's picture

I remember this guy from Gulf of Mexico - now Glencore

tmosley's picture

One wonders if they even have any gold or silver. I would suspect that any stockpiles they had are long gone, having been made into Chinese bars and shipped east.

Oh well, time to enjoy a nice fire-sale anyways. I have some dry powder that I think I'll hold on to--let's see how far the panic takes the price.

highandwired's picture

Just remember, the lower the $price, the less supply there will be

Haus-Targaryen's picture

The big question remains -- is GLN too big to fail and thus bailoutable?

I'm sure this is being discussed. Bond market implosion is simply not affordable for most every government on the planet.

Okienomics's picture

Not too big to fail, unless you're Swiss, who just announced this:

Glencore is the largest company in Switzerland.  Payback is a bitch.  Take 'em down boys.

PontifexMaximus's picture

No problem for Switzerland at all. What happens to BHP, Trafigura, Mercuria etc., not zo forget the squid, they are sharpening their knives.

Calmyourself's picture

Not really a problem, the press broken or what??

fukidontknow's picture

I just got a quote it's going to cost $50 a kilo to have the last of my silver towed away. I guess it's better than keeping it and getting a fine for possession of a toxic anti-bank substance.

FireBrander's picture

"I guess it's better than keeping it and getting a fine for possession of a toxic anti-bank substance."

I sense sarc; but I think you're closer to the truth than you're willing to realize and accept.

When the choice is between "restoring faith in the currency" and "Silver/Gold Hoarders", guess who loses...research 1933, USA and Treasury Secretary Henry Morgenthau, Jr for the answer.

FireBrander's picture

Here's a conspiracy theory for ya:

1. Trash the currency (Check)

2. Force the "smart" people into gold and silver (check)

3. Brand the "smart" people "hoarding" gold/silver as threats to financial/social stability. (pending)

4. Outlaw the ownership of Gold/Silver in "excess".(pending)

5. Coordinate with central banks across the globe to "re-price" the global "price" of gold far below the "smart" people's average cost in order to "restore faith in paper currency"...stealing their "wealth" and bankrupting them.(pending)

6. Mission Accomplished (pending)

Ya know...that's not really a conspiracy theory...that's US HISTORY!...They did it once...really think they won't do it again when the choice of picking "winners" is between YOU and the BANKS?


Lorca's Novena's picture

Exposing the truth gets you a stay at the Fun Camp.... I'll send ya a cake!


At least back in the day you were "allowed" to keep family heirlooms / jewelery, these days I dont think so.

Bemused Observer's picture

That day is long over. This time it won't matter what they "allow".

They can peruse the list of people they KNOW have some gold, and give it a shot. But that is a fraction of "held gold", and they won't even be able to collect a fraction of that.

Unfortunately they do NOT have the names of the majority of people who own gold, nor do they know how much they have. What I know is that they do not have the manpower to DO much about it.

Should they try anyway, it would quickly become a bloodbath, which would keep them too busy to do any gold-searching. They'd be all wrapped up trying to retain their dwindling power to worry about grandma's charm bracelet.

They can't turn you off with a push of the button unless your stuff is 'in the system'. They'd have to physically find and take it...door to door. That plan would unravel within the first 2 hours of implementation, and they would have revolution on their hands.

They KNOW that, so it won't happen. They'll try other things, no doubt, but if you just ignore that and keep your stack hidden, you will outlast them and keep your gold/silver. Make some popcorn and watch them self-destruct as they scream helplessly at you from the teevee..."But we all have to pull together! Those hoarders will crash the economy! Turn them in and save America!"

The only people who might buy that do not own gold, nor do any of their friends. Possession is 9/10ths of the law because when law fails, the one who holds it owns it.

FireBrander's picture

The fault in your thinking is focusing on door-to-door confiscation.

I agree that's way down there in probability.

But, they don't have to phycisally take your gold to deprive you of its "value"...all they have to due is control it's value which is very ounce of gold is worth $ is illegal to buy or sell is illegal to use gold as a form of payment...and you are officially screwed; no "knock down your door" necessary.

Zimbabwe...Why didn't gold take the place of the worthless currency? Because very few owned it and they were scared to death to use it...imagine what happens when the starving/angry mobs find out you're buying stuff with physical gold...

BarkingCat's picture

You cannot bankrupt a precious metals holder who is it leveraged and cares not about short term price variations.
You can however takeout a whole lot of paper holders.

FireBrander's picture

"You cannot bankrupt a precious metals holder.."


Set the price at $100 and you just lost your ass...and, as a bonus, you can't sell the gold you own, nor will the government accept it as payment for taxes're totally fucked.

If you can "outlive" the FED, well then, maybe...but...

Gold was "repriced" in 1933 and STAYED AT THAT PRICE until 1972....39 years! your bunker that well stocked?


Fucking dumbass FED troll. 

You keep your fucking fiat.

I'll keep my copper, brass, and lead.

My precious metals trump your paper armor.

Try paying property taxes with billage versus metals in a few years, and tell me how that works out for ya.  

HopefulCynical's picture

God. Damned. Vampire. Squid.

That is all.

Tarzan's picture

The Blood Moon did it,

So the Squid's tentacles reach to the moon, aligns the planets too?

Blood bath to follow, Cannibals, all of 'em

1033eruth's picture

You know whats sort of funny AND weird, is that you got 4 thumbs down for merely recounting a historical event. It seems to me, is that these oddballs giving you the thumbs down must be gold owners and are giving you negatives because they are AFRAID, that is a possible scenario and by VOTING, they can stop it from happening. Because majority rules baby. That's how Obomit got elected and that's how socialism has become a reality in this country. MAJORITY RULES!

Vlad the Inhaler's picture

We don't have socialism here silly, we have crony capitalism.  What you call socialism is crumbs to keep the poor from rioting.

FireBrander's picture

"We don't have socialism here silly.."


The only TRUE, textbook, Socialism in the USA is the VA Hospital System...and all those "anti-Socialism" politicians just love the VA...Rightwingnut Joni Ernst..."The (Socialist) VA Medical System PROVIDES GOOD's the access time that is the problem...we need more funds to improve the VA's access times"...where's the "Repeal the VA" call?

jcdenton's picture

And one would figure that they have not discounted the fact that they have to figure in Leo Wanta into this equation. Why do you think that the day that Wanta was to meet Vince Foster in Geneva, that same day he gets arrested by Swiss Surete, on trumped up charges filed by the Dept. of Revenue in Wisconsin, over a fraudulent delinquent property tax payment. Thirteen days later -- Foster is dead. Wanta is imprisoned for the next 11 years.

On inauguration day of "W's" second term. Wanta is there in person, sitting with top generals. That same year, at the World Series in Minute Maid Park, Wanta waves to "Sr." saying, look at my security detail. It's bigger than yours!

So, the moral of the story?

All good conspiracies do come to an end .. (start with the 11 minute teaser)


Troy Ounce's picture



Paging Goldman Sachs...paging Goldman Sachs

onewayticket2's picture

Paging Richard and're wanted in front of the entrance to Glencore headquarters.

BandGap's picture

That shit absolutely turns my stomach.

While the world spins out of control, mostly young men spend fucking hours wasting time and money.

What a joke. God, I hate those sites. The NFL owns one of them.

Cognitive Dissonance's picture

I deposited $38 and won over $2 million. At least that's what the TV said.

<Now I understand why young men aren't rioting in the streets. No draft (yet) and FanDuel to keep them busy and distracted when they aren't working 60 hours a week to pay off their student loans and pay the rent.>

VinceFostersGhost's picture



Well.....good for you.


If it worked once....

willwork4food's picture

I got a letter in the mail that said I may have already won $10 MILLION !!

I didn't pay a dime!

VinceFostersGhost's picture



Yeah....I'll send you mine.


You just doubled your're welcome.

Zero Point's picture

Chances? What are those? There's no such thing as risk is there?

BurningFuld's picture

I'm way ahead of you guys. I already sent in my $5000.00 tax processing fee and am expecting my $10 million any day now!

tenpanhandle's picture

May take a while as the mail from Nigeria is quite slow.

hxc's picture


You forgot the part about paying a third of your income to these fucking useless fags.

Jumbotron's picture

I prefer playing FanDuel to the market. FanDuel hasn't been infested with HFT.......yet. /s


You know the top is in when FanDuel becomes the new daytrading.

Fantasy.....combined with Football.....combined with money.  Emphasis on Fantasy. 

Time to troll Ebay and Craigslist again.  There'll be good deals soon.

venturen's picture

all we need is HOTCHICKSFORFREE.COM and the all time most awesome time in history will be confirmed

hxc's picture

Already got shares in it my nigga. Lol

wizteknet's picture

191.4 million CASH! but not after taxes of course

Jack Napier's picture

Why are you giving them free advertising? All they do is rip people off. Another ponzi.

Apparently even the seemingly semi-educated ZH'ers are still just a different colored lemming.

junction's picture

Glencore now = USA soon

franzpick's picture

TT: Very much appreciate your technical contributions, but...???

Dow broaching 16K, SPX breaking 1900, RUT setting new 2 year low below 1100, along with many other new 1.5 year-plus index/sector lows, points to another major 2-3% leg down from here to new, bear market, lower lows, and then a continued decline to places like RUT 1000, for one example, down another 10%, with other targets at Dow 14,400 and SPX 1700. My screens suggest we're in serious trouble here, but then maybe I haven't heard the good news: