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Liquidity Or Solvency?

28 September 2015 by lberuti

Even though investors who took part in GLEINT’s ( Glencore Plc ) IPO have not been in the money for long, the company was worth well in excess of GBP50bln not long ago. After today’s slump, GLEINT is valued at less than GBP10bln. Despite all the management’s efforts to protect their investment grade rating (the company sold new stock, scrapped its dividend and is said to have hired a couple of investment banks to sell a stake in their agricultural business), their debt pile, which roughly amounts to USD35bln, makes some analysts think that they have become more vulnerable to falling prices of copper, coal, zinc and nickel. A report published today speculated that depressed commodity prices could wipe out completely GLEINT’s equity value. Up to now, people have focused on the liquidity position of the company, but they are now questioning its solvency. So not only did the 5 year risk premium of GLEINT widen aggressively today (+362bps at 917bps), but traders also begun to invert the risk premium curve. The 1 year risk premium was marked 800bps wider at 1170bps.