Key Investors Flock to Glencore Flotation

Demand from key institutional investors for shares in Glencore on its flotation has been well above the group’s expectations, particularly in Asia and the Middle East, according to bankers involved in the initial public offering.

Chemoil Energy
Chemoil Energy

The Swiss-based company plans to allocate between 20 and 30 percent of its IPO to so-called cornerstone and anchor investors, which commit themselves to buy ahead of the launch of the flotation and usually are locked in for a certain period.

“Glencore will be unable to satisfy demand [from cornerstone and anchor investors],” a person involved in the IPO said after reviewing initial commitments from Asia-based sovereign wealth funds and large institutional investors in Europe and the US. “It is already oversubscribed,” the person added.

The appetite for the company has been boosted by a recent surge in the value of Glencore’s holdings in listed companies, including a 34 percent stake in London-listed miner Xstrata.

According to Bloomberg data, Glencore’s stakes were worth $32.3 billion on Wednesday. In addition to those assets, Glencore controls unlisted assets, such as mines and farming activities, and its trading business.

“You can reach a valuation of $60 billion for Glencore without much of a stretch,” one of the company’s advisers said.

The banker declined to comment on what valuation the trading house has suggested to the cornerstone and anchor investors.

Glencore, which is discussing with its advisers the final allocation to cornerstone investors, plans to sell a stake of about 20 percent and worth about $10 billion-$12 billion, in London and Hong Kong in May, as it seeks an equity valuation of around $60 billion. That will make the trading house’s flotation one of the largest to date in Europe.

The trading house’s senior management, lead by South African chief executive Ivan Glasenberg and chief financial officer Steven Kalmin, has met over the past few weeks with some of the world’s largest investors, including sovereign funds Kuwait Investment Authority, Abu Dhabi Investment Authority, Qatar Investment Authority and the Government of Singapore Investment Corporation. Bankers said some of Glencore’s investors through a convertible bond it sold in late 2009 to a roster of blue-chip bodies, have expressed interest in adding to their stakes. The bondholders include First Reserve, the US-based private equity group, and Zijin Mining Group, the Chinese miner.

The largest IPOs to date in Europe are the privatization's of Italian utility Enel, which raised $17.4 billion in 1999, and Deutsche Telekom, which raised $13 billion in 1996.

The third-largest IPO, by Moscow-based oil company Rosneft in 2006, raised $10.7 billion.