Glencore, the world’s dominant commodity trader, has taken its first step towards becoming a public company by issuing up to $2.2bn in convertible bonds to strategic investors in the US, Singapore and China.
The issue, which values the publicity shy, Switzerland-based company at $35bn, has been taken up by First Reserve, the US-based private equity group which focuses on natural resources, GIC, Singapore’s sovereign wealth fund; US-based BlackRock’ and China’s Zijin Mining Group.
Glencore said in a statement that the bonds were convertible “into Glencore shares upon a qualifying IPO or upon other pre-determined qualifying events”.
An IPO would trigger massive windfall gains for many of Glencore’s employees, who own the firm, including its South Afican chief executive Ivan Glasenberg. However, a flotation is unlikely in the short term as the trading house could wait for a bigger rise in commodities prices to achieve an even higher valuation, according to people familiar with the trader.
Glencore dwarfs its rivals in terms of size and the number of raw materials it trades. It also owns a variety of mining assets and companies. The value of its 34.5% stake in Xstrata, the blue-chip mining company, has risen from £2.2bn to £10.9bn this year. Glencore’s net income more than halved in the first half of the year to $1.12bn, down from $2.63bn in the same period of 2008 due to the drop in commodity prices. Revenues dropped to $45.2bn.
The proceeds of Glencore’s capital raising could enable it to buy back from Xstrata the prized Prodeco coal complex in Colombia. Glencore agreed to sell this asset to Xstrata for $2bn in January to take up its share of Xstrata’s rights issue.
The company’s increasing openness moves further it away from its roots under Marc Rich, the oil trader who founded Glencore in 1974 but later sold out to management. In 1983, Rudolph Giuliani, then a US prosecutor, indicated Mr. Rich.
The association with Mr. Rich, while severed long ago, added to the compnay’s reputation as a publicity-shy player with “black box” strategies and positions.