New chapter in Glencore’s epic story

The imminent listing of Glencore, the world’s largest commodity trader, has held the attention of the global mining industry for months.

The imminent listing of Glencore, the world’s largest commodity trader, which is due to be concluded next month, has held the attention of the global mining industry for months.

The trading house, which reported net income of almost $4 billion on revenue of $144 billion in 2010, plans to sell a 20% stake of its diversified trading business for as much as $12.1 billion, it said earlier today.

This takes the total value of the company to around $60 billion, making it the biggest IPO this year and propelling Glencore instantly into the FTSE 100, only the third company ever to do so on listing.

Glencore’s primary listing will be in London, the secondary in Hong Kong.

Glencore won’t be the first commodity trader to go public. Asian commodity traders Noble Group, Wilmar and Olam and major US traders Bunge and Archer Daniels Midland all have public shareholders.

Listed traders are unlikely to be unaffected by Glencore’s IPO, though speculation about a tie-up with agricultural trading company Louis Dreyfus is increasing.

But could it spark off a listings-frenzy among privately owned commodity trading companies like Trafigura and Cargill?

Cargill, the world’s largest agricultural commodities producer and trader, is family owned and actively works to remain private. Market sources say that Trafigura would look for funds through the private placement of bonds rather than a listing.

A source at Gunvor, which trades a third of Russia’s oil, told MB that the company has no current plans to list on any stock exchange.

Speculation has been rife that the push behind the IPO came from Glencore’s senior traders, looking to get out while the going is good and cash in their stakes in the company.

Whatever Glencore’s success, as a private company with a finite number of shareholders to sell to, it was challenging for partners to leave the company and cash in their equity. Of course, this situation is not unique to Glencore as traders in other companies readily testify.

With the large shareholder pool promised by the listing, Glencore’s senior employees will ultimately be able to sell their stakes on the stock market.

“Glencore has a very young body of traders. Those traders who are in their 40s must be looking to leave sometime in the next few years, they want to cash in their equity in the company and need to do that on the public market,” an industry veteran said.

Floating Glencore will make its top employees very rich. Market reports suggest that around 400 of the company’s employees will be made multi-millionaires overnight, a heady thought for traders at private houses, perhaps.

But Glencore’s directors are not going anywhere for some time. One of the caveats of the IPO is that the company’s senior staff are barred from selling stock for at least four years.

More junior staff are locked-in for a year.

The company has stressed that the IPO follows years of painstaking work, trading and investment, and is about funding future development and expansion, not paying out current executives.

It was established in 1974, and focused on the physical marketing of metals, minerals and crude oil; 13 years later it acquired a US smelter and a Peruvian mine; by 2007 it was part of the three-way merger that created UC Rusal, in which it maintains a stake; and in 2009 it sold convertible bonds, setting it irrevocably on the path to an IPO.

“It’s easy to try and compare Glencore to Noble or Trafigura but it is much bigger than either of them,” one market observer noted. “Glencore has grown so big, it is more than just a trading company, it owns stakes in miners and offers financing and logistics to its clients.”

Stakes in Russian aluminium producer Rusal and Anglo-Swiss mining major Xstrata set Glencore apart from its fellow commodity trading houses.

Glencore chief executive Ivan Glasenberg said in an interview with the Financial Times Monday that it would make sense for Glencore to merge with Xstrata, in which it currently holds at 34% stake. Glasenberg also noted that a transparent, listed Glencore would a more attractive mate for Xstrata than a greyer private entity.

An Xstrata merger would create mining major worth over $100 billion, ready to compete with BHP Billiton for the title of the world’s largest miner.

Analysts and market participants speaking to MB this week agreed that a listed Glencore would be in a better position to raise cash, expand and get closer to a merger with Xstrata.

But any future marriage between will see major changes to the way both companies work. Glencore will have to shift its mentality from trader to miner if it wants to mesh well with Xstrata and embrace the long-term strategies of a mining house rather than the faster-paced game plan of the trader, as former MB editor Trevor Tarring points out.

Before any merger, Glencore will have to deal with life as a public company.

To outsiders, the activities of private companies like Glencore often seem opaque. Till comparatively recently Glencore only announced details of its revenues and operations to its own shareholders and investors in its bonds.

Glencore has made real moves to disclose more about its business, yet as a public company subject to disclosure of all its activities, the Swiss trader may find it hard to hold on to employees who flourished at its private incarnation.

“Some of the personnel behind Glencore’s success might leave the company if the regulation and bureaucracy of being a publicly listed company gets too much,” a trading source said.

If senior traders do start to leave once their lock-in periods come to an end, Glencore’s listing might portend more than just a change of culture at the company.

Some ask whether the IPO by Glencore is a sign that the commodities markets may be set to peak over the next couple of years.

“It will be viewed in the future as a sign that the end was near,” one source with significant experience in physical metal markets said.

Whether the commodities cycle is reaching its peak or has 20 years to go, the Swiss trading house will be at the heart of the action.

Glencore will be one to watch for a very long time to come.

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