18 May 2018 by lberuti
Usually the direction of the price of oil is a good indicator of where the risk premium of GLENLN (Glencore Plc) is heading to. But today, despite a fairly stable commodity market, the 5-year CDS referencing GLENLN shot up after reports the Serious Fraud Office (SFO) is preparing to open a formal bribery investigation into the company and its work with Dan Gertler and the Democratic Republic of Congo (DRC). The Israeli businessman and DRC President Joseph Kabila have been implicated in previous British and American bribery investigations. The US imposed sanctions on Gertler as recently as December, saying he has used his friendship with Kabila to corruptly build his fortune. An SFO investigation would add to a growing list of legal challenges for GLENLN and was not priced by the market. There is no certainty to what it could bring, and uncertainty is exactly what investors loathe. GLENLN’s 5-year risk premium traded as wide as 150bps before closing at 138bps, 12bps wider on the day, while its share price lost 4.5%.