Glencore unveils $11bn IPO plans

The flotation will move Glencore, run from a nondescript Swiss building, further from its origins in 1974 under Marc Rich, the oil trader who was indicted for tax evasion in the US and pardoned by President Bill Clinton on his last day in the White House.

The company said it had not yet appointed a new chairman, but added it planned an announcement shortly. It confirmed that Tony Hayward, the former BP chief who resigned after the Gulf of Mexico oil spill, will join its board as senior independent director.

In addition, it announced that non-executive directors joining the board would be Peter Coates, until last week chairman of Australian miner Minera; Leonhard Fischer, chief executive of merchant bank RHJ International; William Macaulay, chief executive of US-private equity house First Reserve; and Li Ning, executive director of Hong Kong-based property developer Henderson Land Development.

Glencore explained that it was targeting an offer of $9bn-$11bn, selling a 15 to 20 per cent stake. The sale will comprise a primary component of $6.8bn-$8.8bn and a secondary sale by existing shareholders of $2.2bn. Including the so-called “greenshoe”, or overallotment option, the flotation is set to raise just above $12bn and range the company’s value at between $45bn and $73bn.

The sale is set to become the largest in London and the third largest in Europe, after the flotation in the late 1990s of Deutsche Telekom and Enel of Italy.

Glencore said it expected to become only the third company – and the first in 25 years – to enter the blue-chip FTSE100 index on the first day of trading under the so-called “fast entry rule”, which allows a company to join if its full market capitalisation amounts to 1 per cent or more of the full capitalisation of the FTSE All-Share.

Glencore said in the regulatory filing it planned to use about $2bn in cash and another $1bn in shares to increase its stake in gold and copper miner Kazzinc of Kazakhstan to 93 per cent, up from about 57 per cent currently.

Ivan Glasenberg, chief executive, told the Financial Times that the acquisition of Kazzinc was the “first display” of the new financial muscle of the Swiss-based company. But he reiterated that Glencore will be opportunistic and disciplined.

“We have now the firepower,” he said, explaining that Glencore would not had been able to buy Kazzinc as a privately owned company. Earlier this week, Mr Glasenberg said that Glencore could attempt purchases of $4bn-$5bn, up from $1bn-$2bn in the past.

Miriam Hehir, an analyst at RBC Capital in London, said that Glencore’s IPO could herald sequential merger and acquisition activity for the Swiss group as it expands its already substantial industrial and marketing assets.

“We continue to see a combination of Glencore and Xstrata as a very likely outcome in the next 12 months and would expect equity to be the dominant funding currency,” she said in a note to clients.

Mr Glasenberg declined to comment on Xstrata, in which the trading house owns a 34 per cent stake, but earlier this week he told the Financial Times that a combination between the two companies made sense.

He said the flotation will move Glencore to its “next stage” of development. The company has over the years moved away from a pure trading business, becoming a vertically integrated natural resources company.

Glencore added that the rest of the proceeds will be used to meet its budgeted capital expenditure for the next three calendar years, including the funding of “significant expansion projects” for Kazzinc, copper mining operation Mopani in Zambia, Prodeco coal mine in Colombia and various oil projects in west Africa.