Under fire Glencore opens door a crack

Glencore will lift the veil on many activities Keystone

One of the world’s largest commodities traders, Glencore, has announced it will step out of the shadows by publicly listing up to 20 per cent of its shares.

The long-awaited listing on the London and Hong Kong stock exchanges is expected to fetch up to $11 billion (SFr9.8 billion) for new acquisitions. However, the move was not welcomed by pressure groups that accuse the firm of exploiting developing countries.

Canton Zug-based Glencore has established itself as a powerhouse in the oil, minerals, metals and agricultural products trading industry since it was set up by trader Marc Rich in 1974. Since Rich sold the company for $600 million in 1993, it has mushroomed in size with a current estimated value of up to $70 billion.

The public listing process, announced this month, is significant for two reasons. It represents one of the most significant deals ever made on the London and Hong Kong markets and partially moves control of the privately owned company into public hands – albeit large institutional investors, such as hedge funds and sovereign wealth funds.

By doing so, the notoriously secretive commodities giant will be forced to make public details of how it conducts its business.

“An IPO [initial public offering] is the next logical step in our development and strategy,” Glencore chief executive Ivan Glasenberg said in a statement.

Others to follow suit?

The multi-billion dollar cash injection is widely expected to be put to use funding takeovers and the purchase of new assets, such as mines. Glencore made no comment about a possible takeover of mining group Xstrata, in which it already holds a majority stake.

Industry insiders are divided over whether the Glencore listing will provide a blueprint for other commodities heavyweights, many of them with a strong presence in Switzerland and investing heavily in mines and other infrastructure.

“This could mark the beginning of a new phenomenon,” commodities expert Joseph Di Virgilio, founder of the Globus Capital Management fund in New York, told swissinfo.ch.

“Glencore is acting as a market leader and many competitors will be watching this deal very closely. It is the right move that will give Glencore leverage to fund more deals.”

Glencore’s listing has been one of the worst kept secrets in the industry over the past 18 months. The company gave a massive hint of its intentions when it tested market appetite with a $2.3 billion bond offering in December 2009.

The bond issuance was massively over-subscribed and the lucky few institutional investors that did get their hands on the paper have reportedly already seen their investment double. Earlier this year, Glencore then restructured its board in readiness for the listing.

Ethical criticism

But any hopes that placing part of the company in public hands would force Glencore to change strategy in developing countries are bound to be dashed, according to observers.

Glencore says on its website that it pays close attention to human rights, worker safety and environmental issues. But pressure groups, including Berne Declaration, have continuously criticised the company’s ethics.

In 2008, the company was branded one of the worst in the world for corporate governance at the annual Public Eye “awards” that run on the periphery of the World Economic Forum meeting in Davos.

More recently, it has been accused of human rights abuses in the Democratic Republic of Congo. And earlier this week, Berne Declaration, along with organisations in France, Canada and Zambia, lodged a formal protest with the Organisation for Economic Co-operation and Development (OECD) and the Swiss State Secretariat for Economic Affairs (Seco), alleging exploitation and tax evasion in Zambia.

Glencore has denied all charges, saying it is working to rectify any bad practices it may have inherited after buying some mines, while denouncing the Zambia criticism as being based on incomplete and incorrect information.

Commodities “sexy”

Glencore’s Ivan Glasenberg has made it clear the firm will not change its behaviour despite listing. “Being public will have absolutely no effect on the business,” he told the British Financial Times newspaper. “Investors have to realise that we are going to be looking after our own money as well as theirs.”

Berne Declaration’s Andreas Missbach does not hold out much hope of Glencore changing its ways.

“Listing on stock exchanges per se does not mean that companies have to behave well,” he told swissinfo.ch. “Glencore had no trouble selling bonds, so it seems that institutional investors do not seem too concerned about the company’s reputation.”

For Emmanuel Fragnière, who runs commodities degree courses at the HEG School of Business Administration in Geneva, Glencore has listed for practical business reasons.

“It is a purely opportunistic way of attracting more funds from the financial sector at the height of the commodities boom,” he told swissinfo.ch. “They want to cash in on their brand and the fact that the commodities sector has all of a sudden become very sexy for investors.”

Glencore

Privately owned Glencore, one of the world’s largest traders of aluminium, nickel and other metals.

Based in Baar, canton Zug, the commodities giant was set up by notorious trader Marc Rich in 1974 as Mark Rich & Co.

Rich fled to Switzerland in 1983 to escape charges laid in the US – by then state prosecutor Rudolph Giuliani – of tax evasion in the US, before being pardoned by President Bill Clinton in 2001.

Rich sold his company to management for around $600 million in 1993, after which it was renamed Glencore. The company is at present owned by 485 directors who have private stakes in the business.

Glencore reported a 40% rise in profits last year to $3.8 billion (SFr3.4 billion) and a 36% boost in revenues to $145 billion.

The intended initial public offering in London and Hong Kong is expected to represent between 15 and 20% of the company’s total share capital once it is completed, the firm said in a statement.

The company expects an initial allotment of shares to raise $6.8 billion to $8.8 billion. Existing shareholders (directors at the company) would then sell off a further $2.2 billion to cover tax liabilities.

The total number of shares issued could eventually bring in $12.1 billion, the company said. This would value the company between a range of $45 billion to $73 billion.

If these figures are reached, the deal would become the largest that the London market has ever seen.

It would be the third-largest in Europe after flotation of Germany’s Deutsche Telekom and Enel of Italy in the 1990s.