Secretive trader prepares to open up

Switzerland's Glencore is considering plans for what is set to be one of the biggest listings of the year. Nikhil Kumar reports

There is little overlap between Tony Hayward and Marc Rich apart from years of experience in the commodity markets. The former was the chief executive of BP until he was forced to step down in the wake of the devastating Gulf of Mexico oil spill last year. The latter was once a leading commodities trader who was indicted for tax evasion, charged with tax fraud, but then pardoned with a stroke of Bill Clinton's pen in the final days of his presidency.

But if they met this week, the conversation might well focus on a more specific topic, namely the trading house founded by Mr Rich in 1974.

The company, which was set up in Switzerland as Marc Rich and Co, swiftly grew into one of the world's biggest players in the business of raw materials.

He sold his interest in 1994, when the company was renamed Glencore, the commodities trader which this weekend was reported to be looking at potential candidates – including Mr Hayward and Chip Goodyear, the former chief executive of BHP Billiton – for a revamped board ahead of a possible listing later this year.

The privately held group, which is believed to have around 500 shareholders drawn from the ranks of its employees, is known for holding its cards close its chest.

For months, the talk in the market was that it was studying a merger with Xstrata, the FTSE 100 listed mining giant in which it owns a stake of around 35 per cent.

But the issuance of a $2.2bn convertible bond in 2009 triggered expectations of an independent float, one that could see Glencore raising between $7bn to $8bn, according to recent reports.

Speculation at the end of last year suggested London was the venue of choice but more recently it is said to be weighing up the possibility of a dual listing in London and Hong Kong. Bankers from Citigroup, Credit Suisse and Morgan Stanley are believed to be working on the offering, which, if it comes about, would be one of the biggest flotations of the year. If it goes for the Hong Kong route, the listing would be the biggest foreign float in the exchange's history.

And yet, even as dealers ready themselves for the blockbuster offering, we know little about the inner workings of the business, which made its first equity investment in an industrial asset in 1987, acquiring a 27 per cent stake in the Mt Holly Aluminium smelter in the US.

Based in Baar, Switzerland, its current board is populated by insiders and is led by chairman Willy Strothotte, who joined the business in 1978 and rose through the ranks to become chief executive in 1993.

He was both chairman and chief executive from 1994, the year that Mr Rich sold out, to 2001, when the roles were split.

Ivan Glasenberg, formerly the head of Glencore's coal department, became chief executive in 2002. He is believed to be looking at options to reshape the board as a listing would necessitate compliance with corporate governance norms that call for the appointment of an independent chair and independent non-executive directors, among other things.

Despite its secrecy about its inner workings – something that analysts say is to be expected given its long history as a private company – there is little doubt about its size and influence. "It is very important and very big indeed," Martin Potts, an equity analyst at Daniel Stewart, said, pointing out that if Glencore were based and listed in London, it would be among the top blue chips in the FTSE 100 index.

Just how big and how important is evident from a cursory glance at its vast operations. It employs more than 2,000 people in its global marketing operations in some 50 offices spread over 40 countries. Its industrial operations are even bigger, employing over 50,000 people at 15 plants in 13 countries.

Operations span the commodities markets. The business is organisation around three main divisions. The metals and minerals group deals in everything from aluminium to copper, nickel and lead, while the energy products division encompasses crude oil and coal. Glencore is also active in the agricultural commodities markets, dealing in wheat, maize, barley, edible oils, sugar and oil seeds.

All this before we count Glencore's collection of stakes in publicly listed companies such as Xstrata.

The holding in the Anglo-Swiss mining giant is supplemented by a 44 per cent interest in the US group Century Aluminium, approximately 71 per cent of Minara Resources, one of the world's top 10 nickel producers, and nearly 75 per cent of Katanga Mining, which operates a large-scale copper-cobalt project in the Democratic Republic of Congo.

Glencore also has stakes in Chemoil Energy, Recylex and in Rusal, one of the world's largest aluminium producers with an annual production capacity of 4.4 million tonnes of primary aluminium.

In terms of the bottom line, net profits for the first nine months of 2010 rose by more than 40 per cent to $2.5bn. Underlying earnings climbed by nearly 60 per cent to $4.1bn over the same period, while net profits for the third quarter of the year jumped to $979m – the highest level since the world economy slumped in 2008.

Thought the timing remains unclear, recent speculation suggests that Glencore may unveil its listing plans as early as March, when it posts annual results. Among the issues on the agenda include the future of its relationship with Xstrata, with recent speculation suggesting that, once investors have a better handle on Glencore's valuation following the listing, they may be more in the mood for a merger.

But why go public in the first place? The answer lies the way the commodities market has changed over the last decade or so, according to sources familiar with the matter.

Rising commodity prices, and the worldwide rush to secure new resources, has driven up the cost of buying up mines.

Going public would bolster Glencore's resources, allowing it to expand in ways that would be beyond the reach of a private company, even one as large as itself. But it would also force the trader to open up to the increased scrutiny that comes with a float. Only time will tell how it adjusts to the change.

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