Ven 25 Fév 2011 14:08
The biggest company you never heard of
Friday February 25, 2011 10:11:07 AM GMT
The convertibles pay a staid interest rate of 5 percent a year until they mature in 2014, but carry extra incentives for Glencore to transform itself. If by December 2012 Glencore has not floated or merged with another company, bondholders can sell their bonds back to Glencore at a price which would give investors an annualised return of 20 percent -- in line with the sort of returns you might expect from equities. This payment could take place from mid-2013, though Glencore will not be penalised if markets turn lower and an IPO is not attractive.
ROBUST DIALOGUE
Industry sources expect merger talks to begin about six months after the IPO. If Glencore and Xstrata do not combine forces, the two could end up competing for mining assets. That would heighten the increasingly tense relationship between their brash, strong-willed South African CEOs: Glasenberg and Xstrata's Mick Davis.
"You would expect any dialogue between them to be very robust - both of them have black-and-white views on value," says an industry source who knows both men.
Beyond Xstrata, Glencore's ambitions could soar. As a blue-chip name it would be able to compete against BHP Billiton and Rio Tinto for some of the biggest deals around.
One recent rumour, according to Liberum's Rawlinson, is that Glencore might make a play for Kazakh miner ENRC, a London-listed FTSE-100 company with a market value of $21 billion -- too big to swallow now, but feasible once Glencore could issue shares as payment. Other majors would likely regard ENRC, which focuses on emerging nations including Congo, as too risky.
"I don't think any other firm would dare look at them, but Glencore would," said Rawlinson. "They know how to deal with Congo, they know how to deal with oligarchs and they already operate in Kazakhstan. So, there's a perfect example of how they'll do stuff that other people won't."
HANDCUFFS AND RISKS
But a listing would also bring a host of issues to grapple with. For one thing, Glencore will have to reassure investors that its prized traders won't just cash in and take off. People in the industry point out that traders who have accumulated large fortunes without any public attention may prefer to keep working in a private environment -- perhaps at a competitor, or a trading house they set up themselves.
"I think there could be serious concerns about what happens when the very senior management receives shares," says Jonathan Pitkanen, head of investment grade research at fund manager Threadneedle. "I would expect that key individuals would have to enter into some form of golden handcuffs so they are tied to that business for an extended period of time."
There are other risks in exposing a secretive, agile business to the scrutiny of public ownership.
Glasenberg can be affable to those he knows, but he cherishes his privacy and dreads the day an IPO will force him to step into the limelight, industry sources say.
The firm would also need to appoint independent directors to its board, and would likely search for a chairman with top credentials in financial circles but no existing links to Glencore. In that light, the company's most significant departure could be Strothotte, 66, who joined in 1977 and ran the metals and minerals division before replacing Rich as CEO in 1993.
"Clearly there's going to be a sea-change once they are publicly listed, given the requirements of listings first of all, plus the complexity that you have within Glencore as well," says Pitkanen.
A big part of that would be the requirement to publicly share information that Glencore now gives only to its banks and bond investors.
Currently, "Glencore is a private company and our communications policy with the media reflects this status," the firm said in a statement to Reuters. "Full financial disclosure is made to all of the company's shareholders, bondholders, banks, rating agencies and other key stakeholders. Glencore publicly discloses aspects of the company's financial performance on a six monthly basis."
Could the glare of a public listing be less dramatic than some fear? Resource groups such as BP, which houses one of the world's biggest oil trading operations, have managed to juggle public life without revealing too much about exactly what their trading arms are up to. Gidley-Kitchen says that like many banks, a listed Glencore should also manage to keep most details of its trader compensation under the radar: "Goldmans and Barclays Capital managed to avoid revealing absolutely everything that they are doing and I would think Glencore would be able to do the same."
ACTIVIST RISKS
But that wouldn't stop activists from digging. Gavin Hayman, director of campaigns at activist group Global Witness, says information disclosed as a result of an IPO could help environmental and corruption campaigners keep track of what Glencore is doing in far-flung corners of the globe.
"Trading companies like Glencore are notoriously opaque, even by the standards of an opaque sector like natural resources. They deal with a part of the chain that is particularly prone to mismanagement, corruption and diversion," Hayman says. "Hopefully listing will bring more transparency and allow greater scrutiny of its operations, which is good news."
In one example, officials in Zambia believe pollution from Glencore's Mopani mines is causing acid rain and health problems in an area where 5 million people live. The Environmental Council of Zambia has said it is looking into "a number of complaints" regarding pollution from Mopani, but has not penalised the company for any wrongdoing.
"Smelting operations release sulphur dioxide and other pollutants which have severely affected residents with various skin, eye and respiratory diseases. Because of mining waste Mufulira has acidic and poisoned water," Mufulira town clerk Charles Mwandila told Reuters in an interview.
Mopani says it has already significantly improved environmental performance since privatisation, and is following a clear and agreed plan to make further progress. "Investment to improve environmental performance has already amounted to some $300 million with another $150 million of investment planned."
Glencore's huge coal operation in Colombia, Prodeco, was fined a total of nearly $700,000 in 2009 for several environmental violations, including waste disposal without a permit and producing coal without an environmental management plan. Xstrata had to pay the fines during its temporary ownership in 2009, but said the violations occurred when Glencore was in charge. Xstrata, like many major mining groups, has experience in meeting demands for tough green standards and says it put in place an environmental management system at Prodeco before handing the mines back to Glencore in early 2010.
In Ecuador, the current government has tried to reduce the role played by middle men such as Glencore with state oil company Petroecuador, says Fernando Villavicencio, a Quito-based oil sector analyst. "Glencore has not been transparent in its business in Ecuador," Villavicencio said. The company "had been a favorite of almost all the democratic governments of Ecuador. It won almost all the contracts it competed for. They signed contracts with apparently low differentials, only to renegotiate the contracts in the middle of their terms, arguing that their costs had risen. Petroecuador usually went along with it."
Ce que l'on conçoit bien, s'énonce clairement, Et les mots pour le dire arrivent aisément. BOILEAU