[miningmx.com] — Hong Kong/London – Commodities giant Glencore plans to raise up to $12.1bn in a London and Hong Kong offering that will boost dealmaking capacity at the height of a resources boom and make millionaires of its partners.
Details of the offering, outlined in a London intention-to-float and confirming an earlier Reuters story, did not include the long-awaited appointment of a new non-executive chairman for the group – a requirement for its listing.
“It is an important decision, we are just working through the final process. We have chosen someone, so we should announce it shortly,’ Chief Executive Ivan Glasenberg said in an interview with Reuters, declining to comment further.
Three candidates were on the shortlist days before the document was published, including former French Foreign Legionnaire Simon Murray and two others.
The new chairperson will sit on an eight-strong board alongside Glasenberg.
The much-anticipated float, which has generated a buzz akin to the 1999 float of Goldman Sachs, marks the end of four decades of closely guarded privacy for the world’s largest commodities trading company.
The deal will also turn many of Glencore’s executives into instant millionaires, although the firm has blocked senior management from selling shares for up to five years.
“All partners are invested for the long term. No one is taking money off the table,’ Glasenberg said.
Baar, Switzerland-based Glencore is seeking to capitalise on record-high prices for several commodities and surging demand for metals and other natural resources from fast-growing economies in China and India.
Glencore, controlled by some 500 partners, reported a 40% rise in 2010 net profit to $3.8bn, while revenue climbed 36% to $145bn.
But slim margins at Glencore’s mines and smelters have been a concern for some.
The narrow ratios contrast with better overall margins at its nearest listed rival, Noble Group.
Strong demand
“Glencore is a commodities trader and less vulnerable to commodity prices,’ said Helen Lau, an analyst at UOB Kay Hian.
“The sheer size of trading volume in commodities will continue to rise globally. Investors probably will be very interested in the IPO, given the commodities prices are so high now.’
Prices of copper and other commodities have traded at record-highs recently, with the Reuters-Jefferies CRB index, a global commodities benchmark, up more than 8% since the beginning of the year.
The index has been trading near its strongest level since September 2008.
Sources previously told Reuters that Glencore’s proposed IPO had received a positive response from potential investors when the firm’s management travelled the world to gauge demand for the deal.
“It is very savvy for them to list in both London and Hong Kong. The appetite for commodity-related shares in Asia is well-known and remains robust,’ said Kirby Daley, a Hong Kong-based senior strategist of Newedge’s prime brokerage unit, which provides services to hedge funds.
Many, however, are still cautious.
“I’m not going to buy into the offering straight away,’ said Ion-Marc Valahu, fund manager at Swiss firm Clairinvest.
“I’ll see how the stock trades before deciding to buy the shares or not. It’s not clear where we are in the commodities market cycle.’
Glencore is targeting an offer size of between $9bn to $11bn. The London part of the offer should raise up to $8.8bn while the Hong Kong leg of the deal could raise up to $2.2bn.
After the IPO, the free float is expected to be between 15% – 20%.
If a 10% greenshoe over-allotment is exercised, the total IPO proceeds rise to $12.1bn.
Glasenberg said he was confident the offer would now go ahead, and market analysts and fund managers agreed.
“With that cluster of banks behind it it will succeed. The market would have to go very bad for it to be pulled,’ said Damien Hackett, mining analyst at Canaccord Genuity.
The deal could be the biggest IPO in London and comes as global stock offerings jumped 12% in the first quarter of 2011 to $189bn.
Stock offerings in Asia Pacific had their strongest first quarter on record, according to Thomson Reuters data, indicating strong appetite for stock issuance despite tensions in the Middle East and volatility in global markets caused by the devastating earthquake in Japan last month.
Glencore plans to use $5bn of the IPO proceeds for capital expenditure over the next three years, while another $2.2bn will be used to increase its stake in Russian mining company Kazzinc.
Glencore already owns 50.7% of Kazzinc, along with a 34.5% stake in miner Xstrata.
It plans to set the price range on May 4 and conditional trading of shares is set for May 19, the term sheet showed.
Glencore is expected to sign up “cornerstone’ shareholders to its IPO, but these may be made public only when it publishes its prospectus next month.
Glencore officials have met in the past weeks with sovereign wealth funds in Asia and the Middle East, and high net worth investors to garner support for the offering.
Citigroup, Credit Suisse and Morgan Stanley are the joint global coordinators for the offer, the document said.
