Glencore's HK IPO set to sail through exchange: source
Glencore's plan to list shares in Hong Kong is expected to get strong support from market officials and regulators, with no restrictions necessary when the IPO filing heads to the city's listing committee.
A source with direct knowledge of the offering said Glencore is confident that the Hong Kong Exchanges & Clearing Ltd <0388.HK> and the city's watchdog will back the deal, as the exchange has eased rules on mining companies and steadily increased the amount of foreign companies it reviews for IPOs.
While it changed certain rules last year, Hong Kong has been historically tough on listings by mining or commodity-related IPOs, fearing in part that the voracious retail crowd would get burned by a company it was unfamiliar with.
In December 2009, the Hong Kong Securities and Futures Commission stepped in on the more than $2 billion IPO of Russian aluminum producer UC RUSAL, slapping a restriction on the offering that would bar most retail investors from participating on the deal. RUSAL's listing approval also saw several delays.
Glencore, the world's biggest commodity trader, owns $14.6 billion worth of mines, smelters and refiners around the globe, according to a research note by Liberum Capital. More than a third of its revenues come from its commodities trading business, according to the note.
That Glencore is a well-established and profitable player in its industry is expected to trump any concerns listing officials may have about its vast and complex business operations across the globe, the source said.
A separate source told Reuters on Wednesday that the London-Hong Kong IPO is planned for May that could value the company at $60 billion [ID:nLDE728288].
Glencore officials were not immediately available for comment. A Hong Kong exchange spokeswoman declined to comment on individual listings. The Hong Kong source was not authorized to speak to the media on the record about the deal.
The Hong Kong exchange's listing committee is more comfortable seeing Chinese financial companies, retailers and real estate companies roll through the IPO process, with roughly $80 billion of proceeds raised on the market since 2009.
Unlike major mining-focused indexes in Sydney <.AXSR> and Toronto <.GSPTTMN>, HKEx had previously not permitted exploration companies to list unless they proved the existence of exploitable natural resource reserves, and laid out a clear production plan. For the HKEx, that measure was meant to protect retail investors who lacked experience investing in mining companies.
Hong Kong's IPO market is famously heavy with so-called Mom and Pop investors -- individuals from shopkeepers to housewives -- who snap up shares of hot stocks and IPOs. Stock market shares often serve as retirement plans.
Given the high percentage of individual investors, Hong Kong's exchange is sensitive about allowing companies to list that could pose a risk to the city's investor population. Balancing that with its aspirations for overseas companies to list has proven tricky in some cases.
While much of the scrutiny of RUSAL related to its large debt pile, a lot came from the exchange's lack of understanding of how the business worked, and its concern that retail investors could get hurt. Greater China banks, retailers and property companies are the standard bet for the Hong Kong IPO retail crowd.
Since RUSAL, the HKEx has loosened up its rules aimed at mining company IPOs, and has since seen several non-Asian companies list without a hitch in Hong Kong, including French skin care company L'Occitane International <0973.HK>.
London is well known as a capital markets platform in western Europe, but Hong Kong is now emerging as an international center with the highest capital raising capability, said Esther Leung, co-head of Asia capital markets at law firm DLA Piper.
A listing in Hong Kong would help Glencore tap deep-pocketed Asian investors, including sovereign wealth funds in China, South Korea and Singapore.
China's sovereign wealth fund, CIC, bought a 14.5 percent stake last year in commodities firm Noble Group
An IPO would also raise Glencore's profile among other key investors and potential clients in the region.
Hong Kong is likely going to emerge as another mining center along with London, said Kester Ng, J.P. Morgan's head of equity capital markets for Asia Pacific. Both will co-exist but Hong Kong's relevance is set to grow, he added.
(Reporting by Elzio Barreto and Denny Thomas)
(Writing by Alexander Smith; Editing by Michael Flaherty and Jacqueline Wong)
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