Glencore targets $11 billion as IPO draws big guns
Top commodity trader Glencore sought a strong debut for this month's share offering, capping planned proceeds at $11 billion and placing 31 percent with key investors led by Abu Dhabi.
The world's largest diversified commodities trader set a 480 to 580 pence per share price range for the London initial public offering (IPO). That values it at 36.5 billion pounds ($60 billion) at the mid-point, which is below the price some analysts say the company is worth, and was seen as an attempt to leave something on the table.
It's smart for investment bankers to be conservative in their pricing, so as not to disappoint too many people, John McGloin at Collins Stewart said.
But institutional investors may take some convincing.
The key thing Glencore needs to bear in mind is yes, they have an interesting model, but not everyone has bought into the idea of how the business is run, a portfolio manager at a UK investment company said.
To be pricing Glencore over $55 billion is way out of line, I would not buy that.
Glencore, which is planning a dual London and Hong Kong listing, said Wednesday it was looking to raise gross proceeds -- before fees and other costs -- of around $10 billion. That is before a 10 percent greenshoe or over-allotment option which can be sold if there is demand.
The listing will boost Glencore's firepower for deals amid a boom in commodity prices, but will also push it into the public eye after 37 years as a discreet private company.
The IPO will turn publicity-shy executives including chief executive Ivan Glasenberg, a former coal trader, into paper billionaires. Glasenberg, Glencore's largest shareholder, will have his precise holding, along with other details, made public when the full prospectus is published later Wednesday.
Glasenberg is more or less going to be worth around $10 billion, a source close to the matter said.
Some details have begun to trickle out. Glasenberg will be paid 925,000 pounds a year according to a draft prospectus, and will be entitled to a bonus of up to twice that amount. Simon Murray will be one of the best-paid FTSE non-executive chairmen with annual fees of 675,000 pounds.
Glencore's estimate of its future market capitalization puts the company just above the mid-point of a wide $45 to $73 billion value implied in its intention-to-float last month. The mid-point of analyst research was around $60 billion, though that excludes proceeds from the offering.
We could have gone out with a much higher price range. (Glencore) knows a sensible price range is needed, another source close to the deal said.
Glencore said it had struck agreements with cornerstone investors, who will take up around 31 percent of the total offer, one of the largest cornerstone books to date. A separate term sheet reveals Abu Dhabi's IPIC Aabar will be the largest cornerstone investor, committing $850 million to the IPO.
Singapore has agreed to invest $400 million and BlackRock Inc $360 million, while other investors include Credit Suisse Private Bank and Och Ziff, have each agreed to buy $175 million worth of shares.
The source close to the deal said the cornerstones were oversubscribed, with not every early investor getting the full allocation they had requested.
STRONG DEBUT
People close to the matter have said Glencore is looking to target a strong market debut. A less ambitious valuation will also attract investors who have fretted over its motivations for going public at what some see as the top of the commodity cycle.
We expect it to be a successful float. It's well-backed by some very high-profile cornerstone investors, John Meyer, analyst at Fairfax in London, said.
The company confirmed it is looking to raise around $7.9 billion from the sale of new shares in a primary offering, while its partners planned to raise about $2.1 billion in a secondary sale to pay off a tax bill linked to the IPO.
That would value Glencore at about 8 to 10 times estimated 2011 earnings, based on the average forecast of the three banks underwriting the IPO.
Founded in 1974 by trading sensation Marc Rich, Glencore has until now held on to a fiercely prized tradition of public discretion. As a result, investors will scour the prospectus, expected to be more than 1,000 pages long, for details ranging from its existing investors to risks and trading.
The prospectus is also expected to give the first indication of how much the commodities giant will pay its bankers in one of the biggest paydays for the sector this year.
Citigroup, Credit Suisse and Morgan Stanley are the joint global coordinators for the offer.
In its release Wednesday, Glencore said it had appointed an extra 14 banks to lower ranking roles, boosting the syndicate disclosed last month and taking the total to 23 institutions.
Conditional trading is set to begin on May 19, with unconditional dealings in London on May 24 and Hong Kong on May 25.
Glencore is expected to be fast-tracked into the FTSE 100
bluechip index at close of business on the first day of trading, given its size and share of the FTSE all-share index.
Glencore gave no specific earnings figures for the first three months of the year, but said it had continued to benefit from improved market conditions, with substantial improvements in its oil division. Glencore added the strong conditions would continue into the second quarter, with robust demand.
(Additional reporting by Kylie MacLellan, Sarah Young, Julie Crust and Chris Vellacott in London, Denny Thomas and Fiona Lau in Hong Kong; Editing by Alexander Smith)
($1=.6072 Pound)
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