INVESTORS were struggling to digest Glencore’s 1,600 behemoth of a prospectus yesterday, with the doubters focusing on the key question that management will have to answer over the next two weeks: where’s the growth?
One blue-chip investor told City A.M. that the firm’s profit forecasts are too modest and expressed concern about a medium-term commodities peak, while a top broker said that investors are anxious to know what growth opportunities there can be for what is already the world’s biggest commodities trader. “Where do you go from there?” he asked?
Glencore is likely to respond with a barrage of impressive numbers: it plans to put $2.2bn of the float’s proceeds towards buying out most of Kazzinc, bringing its stake in the zinc miner from 50.7 to 93 per cent; it plans $5bn’s worth of capital expenditure over the next two years including $834m to expand Kazzinc and $512m to expand its Zambian copper operation Mopani; and it promises an interim dividend of $350m in August.
The firm put the total value of its assets in 2010 at $79.8bn. But not everyone will be convinced. “The majority of Glencore’s mining assets are not necessarily world-class in the manner of BP and Rio Tinto – but are low cost and big,” said one commodities analyst.
Despite some naysayers, however, Glencore has already accounted for at least 31 per cent of the share offering. A dozen cornerstone investors have promised to buy some five per cent of the company (see pie chart, right), with the option to increase their allocation over the next two weeks before the float date of 19 May.
They buy the firm’s argument that it has a record of high returns: “Glencore has been consistently profitable since the completion of the management buyout in 1994,” the trader’s prospectus said. “Over the past ten years, Glencore has achieved an average annual return on equity of 38 per cent, ranging between 15 and 61 per cent.”
It also emphasises significant “barriers to entry” in commodity trading, which is a “volume-driven business” relying on scale and long-term contracts with suppliers. Glencore’s supply chain is reasonably diversified, it argues, revealing that 65 per cent of the resources it buys come from ten top suppliers.
With the firm gunning for a wide 480-580p price range, there is plenty of leeway for investors to express their doubts.
BIOGRAPHIES | MEET GLENCORE'S BILLIONAIRES
Ivan Glasenberg, 54
Joined Glencore in April 1984 and has been chief executive since January 2002. Glasenberg first worked in the coal/coke commodity department in South Africa for three years as a marketer. He is currently a director of Xstrata and UC Rusal as well as Glencore.
Many doubted Glasenberg would ever want to head a publicly listed company but fund managers have been impressed by his commitment to the long-term, including his pledge not to sell any of his 1.1bn shares.
Daniel Francisco Mate Badenes, 47
Joined Glencore in October 1988, starting in Glencore’s Madrid office, gaining expertise in metals transactions and logistics in both Spain and North Africa. Maté holds a degree in economics from Universidad Comercial de Deusto in Bilbao, Spain.
Aristotelis Mistakidis, 49
Joined Glencore in March 1993 in the zinc/lead commodity department, which merged with the copper department in February 2002. Before Glencore, he worked at Cargill, one of the firm’s competitors, for six years.
Tor Peterson, 46
At Glencore since January 1992, joined originally as a marketer and has been working in the coal/coke commodity department ever since. Before Glencore, he worked for five years for Phibro-Salomon as a marketer, being based in New York, London and the Ivory Coast.
Alex beard, 43
Alex Beard, joined Glencore in May 1995 working in the oil commodity department as a marketer, responsible primarily for the CIS region. He was appointed director of the oil commodity department in February 2007, overseeing all of Glencore’s crude oil and oil products marketing, shipping, exploration and production.