Glencore International Plc, the Swiss commodities trader that sold $10 billion of stock today, gained as much as 3.8 percent on its debut in London after demand for the stock overcame a rout in raw-material prices.
Shares in Glencore, which were sold at 530 pence apiece, rose as high as 550 pence and traded up 1.7 percent at 539 pence as of 10:33 a.m. local time. That gives the company a market value of 37.1 billion pounds ($59.9 billion). Glencore sold 1.14 billion shares in its initial public offering in London and Hong Kong, it said in an earlier statement.
“They could have priced this much higher, there is very strong demand there,” John Meyer, an analyst at Fairfax IS in London, said in an interview with Francine Lacqua on Bloomberg Television’s “On The Move.” “This is an amazing deal, it’s a great company, it’s got consistent long-term growth.” Meyer said the stock may rise as high as 650 pence in the short-term.
The IPO, the biggest since General Motors Co. sold stock in November, attracted investors including BlackRock Inc. (BLK) and Abu Dhabi’s sovereign wealth fund. Glencore, ending three decades of operating as a closely held partnership, announced the sale three weeks before a commodities slump wiped $99 billion off raw materials’ market value in five days.
“Commodity prices are heavily down but still I think investors are looking for the longer term,” Eugen Weinberg, head of commodity research at Commerzbank AG, told Maryam Nemazee in an interview in London on Bloomberg Television’s “The Pulse” yesterday. “Commodities are still in a very long- term upward move.”
Glencore’s market value positions it behind Anglo American Plc (AAL) as the world’s seventh-largest mining company. Four analyst reports last month from banks advising Glencore on the IPO estimated the company’s value at an average range of $52.3 billion to $68.7 billion.
The final sale price of 530 pence a share is at the midpoint of Glencore’s announced May 4 range of 480 pence to 580 pence. Stock in the Hong Kong portion of the offering was sold at HK$66.53 apiece ($8.56), Glencore said today.
“Nothing would’ve done sentiment worse than if there was an immediate mark down,” James Bevan, London-based chief investment officer at CCLA Investments which manages about $7 billion, said today in an interview on Bloomberg Television. Bevan said he didn’t buy stock in the offer. “I’m absolutely confident the share price goes up in the immediate term, but I’m very uncomfortable about what happens thereafter.”
A total of 2.7 percent of the offer was sold to investors in Hong Kong and some institutional investors elected to take shares on the Hong Kong branch of Glencore’s register, it said.
Chief Executive Officer Ivan Glasenberg, 54, is seeking funds for growth. The CEO said last month there’s “good value” in a potential merger with 42 billion-pound miner Xstrata Plc (XTA), in which Glencore already owns 34.5 percent. He said last week he’s also seeking to expand Glencore’s grains unit in the U.S. and may acquire oil refineries.
“Glencore’s offer has seen substantial interest from investors around the world and was significantly oversubscribed throughout the price range,” Glasenberg said in the statement.
Glasenberg is the largest shareholder, with a 15.7 percent stake, which is valued at about $9.3 billion. The listing also makes billionaires of directors Telis Mistakidis, Daniel Mate, Tor Peterson and Alex Beard, the company’s prospectus shows.
Glencore’s directors and employees will own about 83.1 percent of the company after admission, according to today’s statement. Holders are subject to various lock-ups, it said.
The listing follows an 11 percent decline in the Standard & Poor’s GSCI Index of 24 commodities in the first week of May, the biggest slide since December 2008, as U.S. service-industry growth slowed and German manufacturing orders fell. The 19- company FTSE 350 Mining Index (F3MNG), including BHP Billiton Ltd. (BHP) and Rio Tinto Group, has declined 5.9 percent this month.
Gold investors including billionaire George Soros and Touradji Capital Management LP, founded by Paul Touradji, exited all or most of their assets in the SPDR Gold Trust in the first quarter. Eric Mindich’s Eton Park Capital Management LP, a so- called cornerstone investor in Glencore, cut its stake in the trust by 48 percent in the period, a government filing shows.
Still, Glencore’s business model, combining commodities trading and raw-materials production, allows it to profit as prices rise and fall, according to Tim Huff, a director of mining research at RBC Capital Markets in London.
“A lot of people try and correlate pricing of an IPO with the commodity pricing during the period,” Huff said by phone. “The difference for Glencore is that it’s a very unique business model amongst the mining companies that are listed in London. Companies like Glencore with its trading business tend to benefit from the volatility of the market. For a company like Glencore, 2011 is an ideal year to be listing.”
Demand for the stock has also likely been bolstered by so- called index-tracking funds, which may buy about 13 percent of the shares on offer in the IPO, Paul Galloway, a London-based analyst at Sanford C. Bernstein Ltd., wrote in a May 6 report. Glencore is eligible as a “fast entrant” to the FTSE U.K. Index Series and will be included in the FTSE-100 Index on May 25, FTSE said in a May 6 statement.
“It’s oversubscribed, it’s part of the index and the index guys aren’t going to get all of their allocations, so I think it’s fairly expected that you’re going to get demand on this in the opening couple of weeks, specifically on the opening day,” RBC’s Huff said.
The IPO attracted 12 cornerstone investors, including Abu Dhabi’s Aabar Investments PJSC and BlackRock, which committed a combined $3.1 billion, the prospectus shows. Those investors are locked in to their holdings for six months, Glencore said.
Citigroup Inc. (C), Credit Suisse Group AG (CSGN) and Morgan Stanley (MS) are managing the IPO as global coordinators, along with Bank of America Corp. (BAC) and BNP Paribas (BNP) as joint bookrunners. Barclays Plc, Societe Generale SA and UBS AG are co-bookrunners.
Glencore, which trades materials including coal, oil and metals, sold $7.9 billion of new stock, while existing holders sold an additional $2.1 billion in shares for tax purposes and to repay loans, the company said today. The IPO includes an overallotment option, known as the greenshoe, of 10 percent of the offer, which may boost proceeds from the sale to as much as $11 billion.
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