David Prosser: Glencore ahead on Xstrata

Outlook: Glencore's bond issue yesterday prompted renewed speculation that it is planning an IPO next year. That may be so, but the more pressing issue is what the fundraising might mean for mining giant Xstrata.

Last year, Xstrata, in which Glencore has a chunky holding, paid $2bn for the commodity trader's Colombian coal mining business Prodeco. At the time, the deal suited both sides. Xstrata got its hands on a great asset, which has fuelled much of its growth this year, while Glencore, which was then a little strapped for cash in the face of a squeeze on commodity prices, was able to participate in Xstrata's $5.9bn rights issue and avoid seeing its holding diluted.

Now, however, the deal may turn out to have been more one-sided than it seemed. Glencore retains an option to buy Prodeco back for $2.25bn plus costs. That contract expires at the beginning of March, but thanks to the bond issue, Glencore already has the money it needs to pay for the business.

In retrospect, Xstrata's purchase of Prodeco last year was less of a strategic investment for the long-term and more of a short-term loan. And though that loan will generate an impressive return, shareholders would rather keep the prized Colombian mines.