Piercing Glencore's veil of secrecy

With its headquarters tucked away in the tiny Swiss village of Baar it is not surprising that Glencore International has been described as the biggest company you have never heard of.

Anonymity is a trademark of the privately owned commodities empire, which was founded nearly 40 years ago by Marc Rich, the oil tycoon indicted in the United States in 1983 on federal charges of tax evasion and making illegal oil deals with Iran.

But all that could be about to change. Glencore is giving a briefing to analysts in London this week, fuelling speculation that it is planning a long-awaited flotation on the London Stock Exchange, a move that promises to lift at least part of its cloak of secrecy. Reports suggest that the group, which operates worldwide and is owned by its partners, could float about 20% of its stock, valuing the business at about £37-billion and making it one of the biggest companies in the FTSE 100.

Glencore has brought in a former public relations man from Shell to help build a public face for the
company—Simon Buerk, son of
veteran BBC foreign correspondent and newsreader Michael Buerk.
But even he is reluctant to speak on or
off the record.

The group’s website outlines its general strategy and various equity holdings around the world, but other public statements are kept to a minimum. What does seem certain is that Glencore buys and sells about 3% of the world’s oil, operates more than 200 ships and mines everything from copper to coal. It also has grain export elevators in Russia and stakes in crude oilfields off Equatorial Guinea and owns 34.4% of Xstrata, the FTSE 100 mining company, and 8% of Oleg Deripaska’s Rusal, the world’s top aluminium producer.

Appropriately, Glencore’s name comes from “global energy commodity resources”. The list of commodities with which it is involved could fill a book: aluminium, copper, nickel, oil, coal, wheat, barley and sugar, to name a few.

But it is not satisfied. The group has been referred to as “one of the world’s leading trading companies” but is worried that “trader” is synonymous in the public mind with “speculator”. It wants to be seen differently—as a producer and perhaps a “marketer”.

Legitimate concerns
People who know Glencore say its worries are legitimate, given that at least half the business is based on its physical assets and the rest largely on moving these assets to market.

“If you go into a Glencore office you are not going to see people yelling at screens, as you might
imagine in a typical trading business,” one source said. “It’s all quiet and calm. We would prefer to be seen as a transport and logistics
firm, like DHL.”

It is also apparently unhappy about the secrecy tag, saying that sufficient information is available to those who need to know—and that includes the financial community, which received a prospectus as far back as 1996 when a first public bond was issued for $6.5-billion. As recently as March last year Glencore issued a seven-year eurobond to raise €1.25-billion as part of plans to reduce debts, which reached $13.5-billion by the middle of last year.

Last autumn the group, which says it employs 50 000 staff at 15 plants in more than 40 countries, put out first-half financial results which showed that revenues had rocketed from $45-billion to $70-billion year on year, while pre-tax profits rose from $1.5-billion to $2.6-billion. Despite such moves it still refused requests for copies of its prospectuses.

Glencore clearly has a dialogue with City institutions, but it is not hard to find concerns—if not about the level of disclosure, then about the complex relationships that exist between Glencore and the web of companies in which it holds shares, notably Xstrata.

Some in the City fret about Glencore’s perceived influence over Xstrata, in which it is the biggest single shareholder and with which it holds a variety of marketing agreements and other commercial arrangements. These fears have intensified since speculation that Glencore could try to reverse itself into the already-listed Xstrata.

At the mining group’s annual general meeting last year investors holding a quarter of Xstrata shares voted against the reappointment of Willy Strothotte, who controversially chairs both Xstrata and Glencore.

A decision is imminent
A leading City investor, who asked to remain anonymous, said: “It is never ideal to have the company chaired by a representative of the largest shareholder. If Glencore reverses itself into Xstrata a lot of people would be upset that this new relationship and a range of transparency issues would have a [negative] influence on the share price.”

No decision has been taken yet on whether to proceed with a float, but Glencore insiders say that a lot of preparatory work has been done and the button could be pushed in the coming weeks. “They have been doing their homework, working with the banks and talking to stock exchanges, so the option is there to be used. But there is no definite decision yet,” said one person who knows the company well.

The company’s image also continues to be dogged by its former connection with Rich, who spent many years in Europe as a fugitive from US jurisdiction before being pardoned by former president Bill Clinton on his last day in office.

Glencore is irritated by the link with Rich being used against it, pointing out that it has been independent for 17 years. As one insider said: “We have the third generation of people in this company. Apart from three people, no one ever met Marc Rich.”

Insiders say the nature of business in the 21st century means Glencore needs to be able to lay its hands on more cash via equity rights issues and other methods. And while it does not have a wider strategy for buying industrial plants or ownership stakes, it is said to be driven by “opportunities” in sectors in which it has experience.

Under its demanding chief executive, former coal trader Ivan Glasenberg, Glencore has become increasingly acquisitive and a flotation would allow it to reduce its debt and prepare for further operational expansion. Potential acquisitions will come under the spotlight and so will executive pay. The group has already attracted attention from rating agencies during bond issues for its “aggressive” profit-sharing schemes, and the top dozen managers are believed to own almost a third of the business. A flotation in London could make some new commodity billionaires: you will hear about that.—

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