June 24, 2024

DealBook: Glencore to Emerge From Shadows With I.P.O.

Ivan Glasenberg, Glencore’s chief executive, on a teleconference in Hong Kong. The company’s stock offering, set for May 24, could raise $11 billion.Bobby Yip/ReutersIvan Glasenberg, Glencore’s chief executive, on a teleconference in Hong Kong. The company’s stock offering could raise $11 billion.

LONDON — Tucked away in a small village about 30 minutes from Zurich, Glencore International has grown from a small, secretive trading firm into one of the biggest buyers, sellers and producers of commodities in the last three decades. Behind the scenes, Glencore touches most basic resources, like sugar in coffee and the wires in cellphones.

Now, the commodities giant is stepping into the public eye for the first time, with a stock offering set for May 24 that could raise $11 billion. The hotly anticipated debut, which would be the world’s largest so far this year, values the company at $61 billion and will significantly increase the personal wealth of the 485 senior employees who currently own Glencore.

The initial public offering represents an important evolution in Glencore. The company — which handles the physical supply of 3 percent of the world’s daily oil consumption, as well as owning mines, refineries and drill rigs — is jumping into the markets amid a commodities boom that some worry has reached its peak.

But some investors question whether Glencore will be able to move beyond its shadowy past, which includes dealings with rogue states. It also remains to be seen whether Glencore can make the transition from a commodities dealer working in secrecy to a transparent public company that has to regularly report its finances. In its prospectus, it lists “fraud and corruption” among the top risks for its trading operation.

“There are some areas you don’t get too much clarity on,” Egon Vavrek, a fund manager at LGT Capital Management in Switzerland, said.

The offering documents provide a rare, albeit limited, glimpse into how the company operates and its vast influence on the commodities market. Glencore — whose nondescript headquarters are in the Swiss canton of Zug, known for its low tax rates — controls 60 percent of the third-party zinc market and 20 percent to 40 percent of alumina, thermal coal and cobalt. Glencore’s largest shareholder is its South African chief executive, Ivan Glasenberg, whose 15.8 percent stake would be valued at $9.6 billion in the share sale.

A spokesman for Glencore declined repeated interview requests, citing financial regulations in the United States against comment before the listing.

Glencore was started in 1974 by the commodities trader Marc Rich. Mr. Rich — who fled to Switzerland following tax evasion charges and was later pardoned by President Bill Clinton — famously made his money through risky deals, including buying oil in postrevolution Iran and selling it to Israel.

In the 1980s, Glencore started to expand beyond trading activities, buying a stake in a Peruvian zinc mine and other commodity assets. To gain a competitive edge, Mr. Rich forged strong relationships with business and political leaders in countries with large commodity reserves that were deemed too dangerous or corrupt by others, said Daniel Ammann, author of “The King of Oil: The Secret Lives of Marc Rich.”

The strategy continued after a group of managers, including Mr. Glasenberg, bought the company from Mr. Rich for about $600 million in 1994. Mr. Glasenberg had joined Glencore 10 years earlier, originally sourcing coal in apartheid-era South Africa. By the time he took over as chief executive in 2002, Glencore’s investments in mines and other physical assets earned a large chunk of its profit.

“Glencore goes for early stage or undiscovered areas where value is best and price is lowest,” Timothy Huff, a director in equity research at RBC Capital Markets, said. “Price is lowest because perceived risk is highest.”

Mr. Ammann added: “If there was a strike in Guinea, Glencore would be the first to know about it and be able to exploit it.”

Such tactics proved controversial. A 2004 report published on the Central Intelligence Agency’s Web site cited records that claimed Glencore had paid $3.2 million in illegal surcharges to Iraq, under Saddam Hussein, for oil outside the United Nations oil-for-food program. The company denied the allegations at the time.

Over all, Glencore’s appetite for risk paid off. In 1997, Glencore bought a stake in Kazzinc, a zinc producer, from Kazakhstan at a time when that company was suffering from bad management and corruption. The investment not only helped increase production, it reduced unemployment in the region, making it popular with the government.

A decade later, Glencore was the only company willing to lend to Katanga Mining in the Democratic Republic of Congo, which was desperate for cash after the price of copper slumped amid the financial crisis. Once the market recovered, Glencore reaped big profits.

Glencore generates the bulk of its $6.1 billion profit from its industrial assets, including a 34.5 percent stake in Xstrata, another Swiss mining company.

“Over many decades, we have developed Glencore into an unrivaled global integrated commodity producer and marketer,” Mr. Glasenberg told potential investors in April. “An I.P.O. is the next logical step.”

Article source: http://feeds.nytimes.com/click.phdo?i=6b3465a359e693ebffe03f58cb9afa78