Glencore takes $480 mln provision on Radiant World exposure - Bloomberg

Commodities giant Glencore has taken a provision of roughly $480 million to cover its exposure to troubled iron ore trader Radiant World, Bloomberg News reported, citing people familiar with the matter. 

The provision effectively covers Glencore’s entire outstanding net exposure to Radiant World, which is under severe pressure following allegations that it provided falsified documents to lenders.

Radiant World owes Glencore a total of $951 million, while Glencore owes Radiant World $471 million, leaving a net balance of $480 million. The figures - initially was reported by the Financial Times citing a letter from Radiant World to Glencore.

The totals include Glencore’s exposure to Sapphire Minmetals, a trading entity Glencore considers part of the same group, though Sapphire’s chairman has previously maintained the companies are separate.

Glencore had indicated earlier this month that its net financial exposure to Radiant World was "well below" its $500 million threshold for material financial disclosures.

Speaking to investors on an earnings call, Glencore Chief Executive Officer Gary Nagle said the group had halted new transactions, was seeking to exit remaining contracts, and had taken a provision against its exposure, though he declined at the time to disclose the exact sum.

Trading division hit

While the provision falls below Glencore’s official materiality threshold, the $480 million write-down represents a significant hit for its iron ore desk, led by Peter Hill, head of marketing for steelmaking raw materials.

The sum equals approximately a quarter of the average annual earnings before interest and tax (EBIT) generated over the past decade by Glencore’s broader metals and minerals trading unit, where iron ore trading volume is typically smaller than flagship commodities such as copper.

Glencore has historically acted as a key counterparty and backer during Radiant World’s rapid rise into the upper ranks of global iron ore traders, regularly maintaining credit exposures in the hundreds of millions of dollars.

Late last year, Glencore acquired warrants that would allow it to take a minority equity stake in Radiant World, though those options remain unexercised.

Legal action threat

The provision comes amid escalating friction between the two trading houses. Radiant World has sent a formal letter to Glencore threatening legal action over disputed financial obligations, the Financial Times reported on Saturday.

In the letter, Radiant World alleged that its relationship with Glencore extended far beyond standard counterparty trading. The smaller firm claimed Glencore reviewed and approved candidate qualifications for key hires, advised on corporate fundraising, and suggested target pricing for commercial trades.