Glencore Investments Lose $3.8 Billion, Threatening IPO Plan

Thursday, 17 Mar 2011 08:30 AM

 

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Glencore International AG, the largest commodities trader, lost $3.8 billion in the value of its listed mining holdings over the past month as stocks fell, threatening plans for a share sale as its valuation slides.

The value of Glencore’s 10 largest holdings, including a 34 percent stake in Xstrata Plc, slumped 12 percent from Feb. 14 to $28.2 billion yesterday, exceeding the 6.3 percent drop in the MSCI World Index in the period. Stocks fell this week on concern a nuclear accident outside Tokyo may harm the global economy.

Glencore briefed analysts from 11 banks in the week starting Feb. 28 as it studies a $10 billion initial public offering in London and Hong Kong, two people with knowledge of the talks said at the time. The company may be valued at more than $60 billion should it seek a share sale, which could occur in May, RBC Capital Markets said March 3.

“The market is much more difficult than it was weeks ago and people start to get more risk-averse,” said Peter Braendle, a fund manager at Swisscanto Asset Management AG in Zurich, which oversees about $62 billion. “I could imagine Glencore delaying the IPO.”

Credit-default swaps on the company rose 5 basis points to 200, according to data provider CMA. That means it costs 200,000 euros ($280,000) annually to insure 10 million euros of the company’s debt for five years. Simon Buerk, a spokesman for Baar, Switzerland-based Glencore, declined to comment.

Market Moves

Stocks in the U.S. and Europe plunged earlier this week, following Japanese shares lower as the Nikkei 225 index posted its biggest two-day decline since 1987. Commodities also slid as Japan, the world’s third-biggest economy, grappled with the aftermath of a March 11 earthquake.

“If the perception in the market is that growth will slow down and commodity prices will fall, then they would achieve a lower valuation,” Felix Freund, a Frankfurt-based portfolio manager at Union Investment GmbH, which oversees 177 billion euros of assets, said by telephone.

Japan’s Fukushima nuclear plant had power and cooling systems knocked out by a 7-meter (23-foot) tsunami that followed the country’s strongest earthquake on record, and suffered explosions that blew out containment walls. Factories and oil refineries also shut following the disaster.

Stocks Rebound

European stocks advanced today, halting a six-day slide, amid speculation Group of Seven nations will move to calm markets. The value of Glencore’s 10-largest holdings climbed 3.5 percent to $28.8 billion by 12:25 p.m. in London.

An IPO by Glencore, which changed its name from Marc Rich & Co. after management bought out former fugitive U.S. financier Marc Rich in 1994, would end more than three decades of being a closely held partnership.

The Standard & Poor’s GSCI spot index of 24 commodities dropped 4 percent the first two days of this week, capping the longest losing streak since Aug. 24. Oil futures in New York slid below $100 a barrel and U.S. gasoline declined. Gold, copper, nickel, aluminum, silver and corn also fell.

“With volatilities shooting up and prices dropping, any IPO would have to adapt,” Braendle said. “Glencore’s IPO will be attractive if they construct the deal properly.”

Chief Executive Officer Ivan Glasenberg and Chief Financial Officer Steven Kalmin addressed analysts at the London briefing, including those from the IPO’s lead managers Citigroup Inc., Credit Suisse Group AG and Morgan Stanley, two people said.

Xstrata Stake

After its holding in Xstrata, Glencore’s next largest stake is an 8.8 percent interest in United Co. Rusal, the largest aluminum producer. Rusal has sunk 4.6 percent since Feb. 14.

Glencore also owns 74 percent of Katanga Mining Ltd. and 71 percent of Australian nickel producer Minara Resources Ltd. It holds stakes in Century Aluminum Co. and Nyrstar NV, the world’s biggest zinc producer.

On March 3, the company reported a 39 percent increase in 2010 net income excluding exceptional items to $3.8 billion. Glencore employs 2,000 people in its trading units and more than 50,000 at its industrial operations at 15 plants in 13 countries, according to a company fact sheet on its website.

Glencore’s 10 largest mining-company investments are given in its published holdings as of Dec. 31, according to its annual report to bondholders obtained by Bloomberg News.

© Copyright 2014 Bloomberg News. All rights reserved.

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