Glencore, Anglo attacked by short sellers

“You look at the balance sheets and go: Glencore, Anglo American, boom, boom, job done.”

London - The controversial mining and energy trading giant Glencore has been plunged back into crisis by the financial markets, with a near-unprecedented number of investors betting against its share price and narrowing the odds that it could default on its debts.

As global oil and commodity costs have plunged, mining companies have been battered, particularly those perceived as having stretched finances or being exposed to the worst affected minerals.

Glencore, despite outspoken chief executive Ivan Glasenberg's plan to sell mines and other assets until its $30bn (£20bn) debt falls to the “low $20bns”, is still seen by some as the most financially vulnerable.

Glencore's debts are the highest in the industry, with the costs of insuring against default shooting up this week to their highest levels since fears of a default peaked in September. Last night investors had to pay $856 000 to insure $10m of Glencore's five year bonds against defaulting - just a fraction lower than the peak of its previous market crisis a few months ago.

Then, Mr Glasenberg was forced into a humiliating U-turn when investors ordered him to make the company's finances safer. He suspended the dividend, raised $2.5bn from investors, including himself and his other top managers, and pledged to cut a further $5bn by selling assets and making savings.

However, Glencore is now not alone in being attacked by the markets. Yesterday, shares in Anglo American plunged a further 14 per cent at one point, following chief executive Mark Cutifani's admission on Monday that it must put its dividend on hold and cut 85,000 jobs. Despite that attempt to improve its balance sheet, the cost of bond default insurance (measured by the derivatives known as credit default swaps), has shot up even higher than Glencore's, making $10m of cover cost $866,000.

Both companies have been targeted heavily by short sellers, who take bets that shares will fall. Recent days saw the Connecticut and London based hedge fund Viking Global Investors up its bet against Glencore. At a similar time, the famed investor Crispin Odey extended his short position on Anglo American while a Cayman Islands registered fund, Key Group, launched a huge bet against the miner, single-handedly going short on 1 percent of the company's entire £4.2bn stock market value in one trade. Both will have made millions of pounds of paper profits with this week's share price fall.

Paul Gait, an analyst at Sanford C Bernstein, told Bloomberg: “It's the usual suspects, you go for anybody that's leveraged. You look at the balance sheets and go: Glencore, Anglo American, boom, boom, job done.”

The fact that short sellers have kept their sights trained on Glencore this week has been all the more alarming given that today is its so-called “investor day”, when companies talk to their biggest investors. Typically, they issue good news at such sessions, supporting the share price. Some observers were expecting further announcements accelerating the progress of its debt reduction plans outlined in November.

THE INDEPENDENT