10 Things You Need To Know About The Glencore IPO

Glencore International AG is about to take over the world — literally.

1. This mega-company dominates the supply chain.

The scope and scale of their operation is truly remarkable- they mine, refine, and supply.  More importantly they are tapped into the all the major players in metals and minerals, as well as various energy and agricultural products.  This makes them an enabler.  With increased capital they’ll be able to finance idle operations all over the world.  Such a supply will help satisfy growing energy demand and facilitate a laundry list of budgeted infrastructural projects in Brazil, India, and China.  (Cha-Ching!)

2. Glencore is no guinea pig.

 Some have gone to question whether this IPO will spark an industry trend.  Quick answer: No.  Glencore is not a sensible model for this industry -everyone has a different scheme.  Although similar companies like Vitol and Trafigura reportedly need cash, they have not expressed any intention of floating anything right now, let alone allowing the public know how they run their business (How dare you?!).

3. Everyone’s doing it, mum!

Cash is king. These guys have it and really don’t even need to go public.  Yeah, little tricks, little quicks… they can fund any project they want.  But this IPO is a power play at an opportune moment.  The world’s mining giants (Rio Tinto, BHP Billiton, and Vale) have all declared to strategically use their record profits for increased capital investment in an attempt to meet future supply demands.  Someone needs to appease the world’s hunger, right?  Glencore’s turnover last year was $145 billion- tighten your tie, it’s time to expand. 

4. Glencore will go on a shopping spree.

Imagine Cher Horowitz with her Daddy’s credit card- except Cher went to INSEAD and only wears Turnbull & Asser.  First they’re rumoured to acquire Xstrata, a London-based miner in which they already hold a 34% stake.  Next, with billions to blow, Glencore will stake flags all over South America, Africa, and maybe even the US.  The company already operates in 40 countries and has some 55,000 employees.  Even though they may choose to purchase more mines and farms, it’s more likely they will use the cash to buy and sell commodities in higher volumes.

5. Strong commodities = Strong Glencore.

This is a given.  There are two dynamics at play here: supply/demand and speculation.   The conservative and astute economist will always champion the former factor- and rightly so.  But let’s be foolish and say speculators are running the show.  With a weak dollar, inflation expectations, Black Swans, and the global sovereign debt crisis, you and I can bank on this rally. 

6. Increased scrutiny for a secretive company.

Glencore was founded by billionaire Marc Rich in 1974 as Marc Rich & Co. AG.  Yes, this is the same Marc Rich that was indicted on federal charges of illegally making oil deals with Iran in the late 70s.  He was also notably pardoned by President Clinton on his last day of office (à la Tom Clancy).  Though Marc was bought out and the company name changed thereafter, his pupils still hold various roles within and around Glencore’s deal-making apparatus.  These “Rich Boys” are assumingly trying to shed the company’s guarded culture by going public.   They’re already getting heat.

7. Current owners are cashing out.

Let’s not start with the whole “well they’re only paper rich” argument.  It’s reported that after the $60 billion valuation, each of the 485 directors will be worth roughly $167 million dollars each.   Although owners are unable to sell shares for at least a year, with top management held down for five, this IPO creates a massive amount of wealth for the employees that own the group.

8. Glencore will become a major market indicator.

For those of us not pacing the room right now wondering what iron ore is selling at on FOB basis in Colombia, Glencore’s flags in London and Hong Kong will let us know where the wind is blowing.  With its dual listing, the company will be able to appear on major indices and appeal to a broader investor base.  Some of the largest banks however are uncertain whether or not investing in the IPO would be a ‘slam dunk’.

9. “Sail forth- steer for the deep waters only.”

A South Pole adventurer and former Vodafone Group Plc board member is in the running to be Chairman: Simon Murray, ‘The Legionnaire’.   Murray is perfect for the job.  Not only does this candidate have the reputation to reassure investors of the company’s corporate governance credentials, his Rolodex is stacked with deep pocket investors all over Asia, having previously been MD for Hong Kong billionaire Li Ka-Shing’s Hutchison Whampoa.   Um, you’re hired.

10. China is everything.

In October of last year, Roger Agnelli, Chairman of Vale, the world’s largest producer of iron ore, said, “Everyday I pray for China– it’s good for everybody.  The market is in Asia today.”  This mantra will continue to ripple in the wake of China’s industrial revolution.  With China having over $2 trillion in foreign currency reserves, Glencore can count on the dragon to always pay more to meet its needs.  Who looks at price tags anyway?

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