Monday, April 18, 2011

Glencore IPO - Storm the gates or live to fight another day?

Some of you may or may not know that one of the biggest IPOs of this decade is hitting the markets this May. International commodity trader giant Glencore will seek listing on the London and Hong Kong stock exchanges.

Who is Glencore? 

Glencore is a major powerhouse commodity trader and one world`s largest supplier of commodities, the child born out of Marc Rich & Co split. Marc Rich & Co split into Glencore International AG and Trafigura AG. Both of these two are today`s top commodity traders with stakes spanning the globe summing up well over 100 billion Dollars.

Glencore`s been known as a very secretive private company with a shady past, a company that has made riches by dealing with countries such as Iran under embargo at the time, illegal dealings with USSR, apartheid South Africa and Iraq under Saddam Hussein. Parent founder Marc Rich has been for many years in FBI`s top 10 most wanted list until 2001, when US president Bill Clinton issued a presidential pardon within the last few hours of his term.

Presently, Glencore owns stakes in many big oil&mining operations across the globe. It also owns significant stakes in food commodities, being major stockholder in few such food commodity companies.
Glencore has over 50.000 employees wordwide and boasted an annual revenue of 144.9 billion $ in 2010.

Why Glencore?

What`s interesting about Glencore in regards to its oil&mining operations is that company deals with whole production cycle in most cases, from prospecting and extraction to smelting, refining and final delivery.  This gives the company a big upper hand over others in cutting out the middlemen and in being able to better control cost and deliveries. It also helps them secure huge contracts over long periods.

Company boasted a dividend post IPO but some are still worried that a dividend might not last for long post IPO.

Being spanned all across the globe and owning various commodity plays, Glencore becomes attractive as an index commodity play in itself, presenting investors with a lot of diversification both in terms of assets and in terms of geographical diversity of its operations, reducing risk of social, political regional instabilities and of natural disasters.

Many of the big budget hedge funds and wealthy investors are reportedly keeping money aside awaiting this IPO. As it is expected to be one of the biggest IPOs of the decade, it might well become a momentum stock, generating a lot of interest in the few days. Therefore could also be a short term in and out trade, speculating on the hysteria of the initial launch. A few London underwriters reported that the upcoming Glencore IPO sucked the wind out of the market, making clients pass on few new IPO releases, saving money for the Glencore IPO.

Why not Glencore?

Some are worried about the motives and timing of such an IPO. A few speculated that the main drive behind Glencore`s IPO decision has been the current boom in commodity prices and a possible early warning of a soon to burst bubble. Other voices say that certain Glencore stockholders are looking to exit the company. Official Glencore motivation for an IPO is to raise cash for further acquisitions down the road.

Tony Hayward, ex BP CEO is expected to get a high level Glencore management  position, a move that raises some questions in regards to corporate credibility and company image. Tony Hayward has became notorious after the Gulf of Mexico BP oil spill, where as the BP CEO he managed what some labeled as a disastrous PR damage control campaign.

Security analysts claim that while it`s relatively simple to put a price on Glencore`s commodity stakes in several companies, same can`t be said about its trading side of business. Evaluating the trading business will be subject to lots of different interpretations and lead to different views on what IPO share price should be. Aftermath of IPO might leave some analysts with bitter comments targeted at what might be seen as "outrageous valuation" which in turn could hurt the stock price going further.

Last but not least, Glencore`s secretive past dealings apparently torn out of a Tom Clancy spy novel, could hurt shareholders confidence.

The bottom line

Regardless the aftermath of this IPO, this listing is certainly  generating a lot of interest worldwide, keeping lots of hedge funds and wealthy folks with finger on the trigger.
Share price will also be key ingredient in deciding whether to storm Glencore`s gates or live to fight another day.

Will this make you money or not? One thing is certain. Dozens of people in Glencore management positions are about to become millionaires following this IPO. Will investors share same fortunes? Remains to be seen.

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