(Bloomberg) – The Chinese nickel company, which is at the center of a historic short squeeze, has secured a loan package from local and international banks to help it deal with a spate of margin calls, according to people familiar with the matter.
Tsingshan Holding Group Co., which faces potential billions of dollars in losses on short positions in nickel futures, won credit lines from banks including JPMorgan Chase & Co. and China Construction Bank Corp. in meetings that lasted into the early hours of Wednesday morning, people said, asking not to be named as the matter was private. Some of the terms, such as how much additional collateral Tsingshan will have to pledge, are still being discussed, the people said.
Chinese authorities instructed Tsingshan’s domestic banks to offer more lines of credit to the company, two of the people said. Much of this new borrowing will be used to make margin payments on its existing positions on the London Metal Exchange, the people said.
China Construction Bank and Tsingshan, the world’s largest nickel producer, did not immediately respond to requests for comment. JPMorgan could not comment immediately.
The bank loans are intended to help Tsingshan deal with the immediate liquidity shortage. With large nickel production facilities in Indonesia and China, coupled with rising prices and strong demand, company owner Xiang Guangda told bankers at the meetings he was confident his company could meet its commitments, according to people. He is also reviewing his hedging strategy and considering abandoning bets against nickel, one of the people said.
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The deals come after the price of nickel, the metal used to make stainless steel and electric batteries, surged above $100,000 a tonne on Tuesday, before the LME suspended the market and canceled all trades held during the Asian hours took place. Nickel has been rising for weeks on fears of supply disruptions from Russia, the largest exporter of refined nickel. The rally intensified this week, with prices surging as much as 250% in just over 24 hours as traders with short positions rushed to cover their bets.
Xiang and his company hold a position of about 100,000 tons of nickel on the LME, people familiar with the matter said. It could be bigger when bets through intermediaries are considered. Its mark-to-market losses would even be as high as $48,063 per tonne in the billions, where the price is now after being halted and trading halted.
CCBI Global Markets, one of Tsingshan’s brokers, on Monday failed to pay hundreds of millions of dollars in margin calls on its nickel positions. The LME refrained from putting her in default and gave her more time to pay. The broker was able to settle margin calls on Tuesday after several clients, including Tsingshan, received loans to cover their positions, one of the people said.
Traders are required to deposit cash, known as margin, with their brokers on a regular basis to cover potential losses. Brokers, in turn, must hold margin with the clearing house LME Clear. If the market moves against these positions, they will receive margin calls for more funds – and if they don’t pay, they may be forced to close their position.
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