Friday June 19, 09:02 AM
UPDATE 2-Commodities giant Glencore considers flotation -FT
LONDON, June 19 (Reuters) - Glencore International AG, the Swiss-based commodities trader founded by Marc Rich to become one of the world's biggest private companies, is considering a stock market listing, the Financial Times reported on
Friday.
While the paper said a public offering was probably not imminent, such a move would require Glencore to shed much of the veil of secrecy it has coveted since its 1974 founding, opening up its huge and highly successful oil, coal and metals trading operations to investor, competitor and regulator scrutiny.
But an IPO -- which could value Glencore as the world's fourth largest mining company, may now be more palatable as some close to the group view its private, employee-owned structure as inefficient and a barrier to growth, the FT reported, without quoting anyone.
'It is all about finding the right time,' the FT quoted an unnamed banker as saying.
It cited a person familiar with the firm saying Glencore was in initial talks with bankers, adding that any deal was more likely in the medium term, once commodities prices had improved.
Industry sources said the company would also likely want financial markets to stabilise before such a big move, and noted that bankers have pitched the idea several times before.
A spokesman for the company declined to comment.
'The obvious reason for listing is the cash. But with that comes a disclosure obligation, and that would be very exciting for the market, given Glencore's relatively colourful past,' ANZ's senior commodities analyst Mark Pervan said.
'It's a well-known company that isn't well known.'
Based in the billionaire enclave of Zug, Switzerland, Glencore has grown in 35 years from a pure trading enterprise to a major producer and processor of raw materials, owning more than a third of U.K.-listed miner Xstrata (LSE: XTA.L - news) as well as stakes in U.S. Century Aluminum, Russian oil producer Russneft and aluminium giant Rusal, and Australia's Minara Resources.
By combining the global trading expertise of more than 2,000 people in 50 offices across 40 countries with direct access to everything from Philippines copper to Australian coal and Russian crude, Glencore has developed a successful and lucrative formula that competitors have struggled to match.
For more details on Glencore's operations:
DEBT BURDEN
But the problems of Glencore's low-profile, publicity-shy approach became apparent in the last quarter of 2008 when the cost of insuring against default on its debt jumped 16-fold as investors speculated about the company's liquidity.
Its credit default swap (CDS) spreads have since fallen back to an eight-month low, tightening another 50 basis points on Friday to 625 basis points.
This brings it nearer the likes of much smaller Asia-based rival Noble Group Ltd but still more than double historical norms, and some industry sources said a listing could help lower its debt costs.
For a graphic showing its CDS spreads versus Noble (NYSE: NE - news) and Vedanta Resources (LSE: VED.L - news) :
http://graphics.thomsonreuters.com/069/CMD_GLNCR0609.jpg
Standard & Poor's, which downgraded Glencore's debt to BBB- last December, the lowest investment grade rating, said its key refinancing needs will occur in May 2011, when $7.3 billion matures.
As a result, Glencore -- now run by Ivan Glasenberg, who started his career as a coal trader working for Rich in South Africa -- has become in recent months more forthcoming to debt-holders about its financial status, to quell anxiety.
'Being public listed provides an extra avenue to raise money, since there is only so much debt they could put on their balance sheet,' said Ho Choon Seng, analyst at CIMB in Singapore.
In March, Glencore reported in a one-page financial highlights statement that 2008 earnings before interest, tax, depreciation and amortisation fell to $6.79 billion.
Based on the mining industry's typical market capitalisation of 8-10 times EBITDA, Glencore could be valued at nearly as much as Rio Tinto (LSE: RIO.L - news) , the world's third-largest mining company, which has a market cap of around $65 billion.
Glencore reported a net profit of $4.75 billion, down 8.4 percent, before exceptional provisions of around $3.7 billion for asset impairments, provisional pricing and inventory adjustments.
Rich, the former U.S. fugitive who was pardoned by President Clinton in 2001 after 18 years in Switzerland fleeing charges of financial crimes, sold the company to management in 1994.
(Reporting by David Milliken and Jan Dahinten in SINGAPORE; Additional reporting by Jonathan Leff and Nick Trevethan, Jim Regan in SYDNEY, Polly Yam in HONG KONG; Editing by Michael Urquhart) Keywords: GLENCORE/
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