Friday June 19, 02:19 PM
UPDATE 3-Glencore IPO possible, but years away - bankers
By Daisy Ku and Pratima Desai
LONDON, June 19 (Reuters) - Swiss-based Glencore's bumpy ride in credit markets may trigger it to raise equity, but a possible public listing is years away, bankers familiar with the commodity trader's
thinking said.
Discussions about an Initial Public Offering (IPO) are taking place regularly, as Glencore is looking at all options to lower its funding costs, the bankers said.
'I'll be surprised if they were to sell a big chunk of their shares now. If you are talking about the next three to five years, that's possible,' one of the bankers said.
'Glencore is a trading house, traders sell high buy low. Although miners have recovered a bit, the timing isn't right,' the banker said.
The Financial Times reported on Friday that the group is exploring a stock market listing to overcome the constraints of its private ownership structure, a possible barrier to growth. The company declined to comment.
Based in the Swiss city of Zug, the company has over the years grown from a pure trading enterprise into a major producer and processor of raw materials, owning about 35 percent of U.K.-listed miner Xstrata (LSE: XTA.L - news) .
For details on Glencore's operations.
Its opaque nature as an unlisted company manifested when the the cost of insuring against default on its debt jumped 16-fold in the last quarter of 2008 as investors speculated about the company's liquidity.
For a story on Glencore CEO Ivan Glasenberg and for a column on Glencore.
LIQUIDITY SOUND
But its credit default swap (CDS) spreads have since fallen to an eight-month low, tightening another 50 basis points on Friday to 625 basis points.
'The company is currently reliant on the debt markets for funding, and the experience of the past nine months has highlighted the limitations of this model,' credit analysts at RBS (LSE: RBS.L - news) said in a research note.
One of the reasons why the idea of a listing seems credible are recent perceptions that the company has liquidity problems, a concern that has hurt Glencore's CDS in the past. But analysts said they were comfortable with its liquidity.
'Although a concern of many debt investors, we regard the company's liquidity as adequate,' UniCredit (Milan: UCG.MI - news) said in a note.
The recent signing of a $6.7 billion forward-start agreement, a type of loan, and a $8.2 billion revolving credit facility showed the strong relationship the company has with its banks, UniCredit said.
'This is not the moment to take action. Glencore has no liquidity problem,' another banker said.
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 capitalisation of about $65 billion.
'(A listing) would be an additional source of funding beyond ... the debt markets but it would also entail substantial requirements in terms of reporting, disclosures and governance,' said Miriam Hehir at RBC (RBCI.PK - news) capital Markets.
(Reporting by Veronica Brown, Eric Onstad, Quentin Webb, Natalie Harrison, Jane Baird, Steve Slater, David Milliken, Jan Dahinten, Jonathan Leff, Nick Trevethan, Jim Regan, Polly Yam; writing by Douwe Miedema; editing by Sue Thomas.)
(Editing by xxxx) Keywords: GLENCORE/
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