A boulder of debt keeps threatening to roll back and crush Glencore

Outlook

(Bloomberg via Getty Images)

Glencore is becoming a corporate Sisyphus. Just like the tormented king of Greek mythology, the business is pushing a boulder up a hill – a multibillion-dollar debt pile that keeps dragging down the share price. And like Sisyphus’s rock, every time the company manages to get itself to the position where the markets think it might just be over the hump, it rolls back down again.

What that debt hasn’t quite done yet is crush Ivan Glasenberg’s baby, which once basked in the glory of being the biggest flotation London had seen, and followed it up with one of the biggest deals the world had seen, merging with rival mining outfit Xstrata close to the top of the market.

The slide since then has been dramatic. Glencore got itself through a controversial rights issue to steady the ship when the vultures were circling in September, and started pushing its rock back up, only for it to fall again when an analyst argued its shares were effectively worthless. The home team (Citi) lent it a push by suggesting the company could go private, but now that boulder is rolling down again and the cost of insuring the debt is rocketing.

What investors have learned, to their great cost, is that the trading engine, which everyone thought made this company different from the miners that litter the FTSE these days, isn’t insulating Glencore from a global commodity price crunch. So when a company like Anglo American slashes and burns its dividend and its workforce, the natural reaction is to think “If that’s what Anglo has to do, what’s Glencore going to do with all that debt?”

London patted itself on the back when Glencore and others combined to make it the world’s mining hub. A testament to the City’s strength, they said. No longer. Scandals at Bumi and the “more Soviet than City” ENRC have done as much as certain banks to blacken the reputation of the financial centre.

Glencore, which received the rare privilege of direct entry into the FTSE 100 when it listed, has hardly been shy of scandal itself. As its managers start pushing the rock again, have any lessons been learned? It’s doubtful. If Glencore 2.0 knocks on London’s door the welcome mat will be out – it’s the fees, you see. The bankers book them on the way in, the accountants and the lawyers on the way out. And our pension funds, in the middle of it all, get burned.

Managing outside the EU is not the same as thriving

Michael Spencer is the latest business leader to opine that the UK could thrive outside the EU. The boss of ICAP told the BBC that as we’re the world’s fifth biggest economy we’ll do just fine on the outside.

Which, as I have written before, is probably true, but only up to a point. The problem is that Mr Spencer and others like to make it sound as if voting “out” (although Mr Spencer says he himself hasn’t made a final decision) will be easy. What he doesn’t say is that while the UK could manage, it will manage as a poorer, more inward-looking country that will still have to adhere to most of the regulations handed out by Brussels. That is because we will want (and need) access to the European single market. So we, like the Swiss and the Norwegians, will have to abide by its rules. We just won’t be able to vote on them.

Without that access, via a replacement free trade agreement, trade credit insurer Euler Hermes reckons the UK could lose £30bn of exports by 2019. Not a good figure given the record trade deficit this country already runs with the rest of the world. It also estimates that the turnover of British companies will contract by 1 per cent per year on average, compared to a current predicted growth rate of 4 per cent after 2017. It isn’t hard to find similarly downbeat forecasts. I’ve known and liked Mr Spencer for many years but he is being just a tad disingenuous. It should also be borne in mind that as a successful businessman he will be insulated from the economic damage that will be the result of an EU exit.

Just think of the money, Darling

Five years since he traded in his ministerial red boxes, Alistair Darling has joined his old boss Gordon Brown by taking the City’s shilling (although the latter says his fees from fund manager Pimco will be used for charitable purposes). Mr Darling has joined the board of Morgan Stanley, which has hailed his “insight into both the global economy and the global financial system”.

It’s also been willing to forgive some of the less than flattering things he has said about the banks that operate within that system. At least hiring him isn’t going to (ahem) break the bank. Company filings show that Morgan Stanley board members were paid $75,000 (£50,000) for their services last year, and between $10,000 and $30,000 more for working on, or leading, board committees. Plus $250,000 in stock. That’s the cherry on top.

But perhaps the financial services industry owes Mr Darling a cherry or two, despite the mean things he’s said about it. He played an important part in its continued existence by funnelling billions of taxpayers cash into it. And his contacts book should be able to assist the bank with getting its foot in doors it wants opened. Perhaps just as important is the message Mr Darling’s hiring sends to the current generation of politicians on both sides of the Atlantic: “Look, this is where you could be! Now, let’s ease up a bit, and forget all that silly talk about breaking us up, shall we?”