Glencore’s partners are not offering equityto you and me out of a sense of charity
We’re all going to be investors in Glencore, whether we like it or not. If the flotation of this giant commodity and mining group goes ahead next month at the valuation currently indicated, it will leap straight into the upper reaches of the FTSE 100 — something that has not happened to any new share since the big privatisations of the 1980s. That means every major pension fund, and all those tracker funds and funds of funds that wealth managers love to stuff their clients into, will end up owning little bits of Glencore.
The fact that this secretive operator, headquartered in a fiscally convenient Swiss village, controls half the world’s copper trading and two thirds of global zinc trading, plus shedloads of coal, oil and agricultural produce — pretty well everything the world is running short of, in fact — should make Glencore shares even more of a must-have. But that does not mean we shouldn’t greet the flotation with a dose of scepticism: we should ask why the firm’s 485 faceless partners have chosen this moment to turn their stakes in Glencore into another tradeable commodity, at such a high opening price. The managing partners could be enriched by $200 million each, while the South African-born chief executive Ivan Glasenberg will become an instant multibillionaire.
Well, that’s what happens if you build a successful business and launch it on the stock market, even if it’s a business that just buys and sells stuff, some of which it digs out of the ground. Glencore has long been divorced from its controversial founder, the trader Marc Rich, who was indicted for tax evasion and illegal oil dealing but pardoned by Bill Clinton (though not by Taki, for whose barbs Rich remains a regular target). If the group trades in undemocratic countries, that’s because dictators often happen to be sitting on natural resources the rest of the world wants. If it has hitherto revealed very little about itself, that’s what Swiss-based private partnerships do.
So we shouldn’t be too sniffy. It is conventional for companies this big to want to list their shares, not just to reward the founders but to create a currency for acquisitions: in Glencore’s case the likely target is the mining group Xstrata, of which it already owns a third. And the senior Glencore partners have sworn not to sell their stakes for five years, so they can hardly be painted as insiders cashing out ahead of a market peak, especially given the long-term trajectory of Chinese demand for copper and coal.
Caveat emptor nevertheless. Observation of the financial sector (to which the commodities sector is spiritually adjacent) has taught us repeatedly that businesses develop a more cavalier attitude to risk when they become shareholder-owned — and can make play with other people’s money — than they did when they were only betting their partners’ private capital.
And as my ever-reliable man in the mining sector with a hard-hat and big shovel says: ‘Glencore is run by financially astute people who are not offering their equity to you and me out of any sense of charity. Just because a thing is too big to avoid doesn’t mean you should run towards it.’
Call in the Foreign Legion
The hotshots at Glencore may know the price of everything but they don’t seem to have grasped how to put together a board of directors for a FTSE 100 company. As of last week, when the pre-flotation PR circus was already in full swing, the only Glencore non-executive director that anyone had ever heard of was Tony Hayward, who resigned last year as BP’s chief executive after his hapless performance during the Gulf of Mexico disaster — and whose market value, if he was a precious metal, would surely still be close to its all-time low. Glencore had apparently hoped to appoint a second ex-BP man, Rodney Chase, as chairman, but when that didn’t happen it tried a third one, Lord Browne, whose market value has crept back up these days even though his crash (in 2007, after he admitted lying in a High Court deposition about his private life) was even steeper than Hayward’s. But Browne fell out with Glencore over ‘corporate governance’ issues, so a non-BP candidate has hurriedly been put in the frame. He is a veteran Hong Kong dealmaker, Simon Murray — a tough nut whose market value is boosted by the fact that he once served in the French Foreign Legion. Having occasionally encountered Murray’s charismatic cold stare in my own Hong Kong days, I’d say he’s more than a match for any overheated commodity trader, so a strong pick.
But if the Glencore boys are still fixated on BP, they could do a favour for the stumbling oil company — now in such difficulties with its Russian ventures that some shareholders want to see the whole group broken up — by poaching its ineffectual chairman, Carl-Henric Svanberg. He came to BP from the Swedish phone maker Ericsson, so perhaps Glencore could put him in charge of the switchboard, fielding calls from new investors asking awkward questions.
Many a slip
I have been enjoying Twenty Twelve, the BBC Four sitcom about getting ready for the Games, which my mole at the Olympic Delivery Authority tells me is excruciatingly close to reality. It reminds us that no collective human endeavour proceeds in a linear fashion: for every three steps forwards there’s always one step backwards and a sideways shuffle. So it is with economic recovery: inflation fell in March, employment rose by 143,000 from December to February, exports remain strong. But retail sales have been dismal and it would be folly to expect an unbroken stream of good news from now on — or to think that the Royal Wedding balcony kiss on 29 April will be the moment when the nation shakes off three years of gloom and declares itself economically fit again. I’m sticking to my prediction, made 18 months ago, that the cathartic moment won’t come until 27 July 2012, when the Queen says ‘Let the Games begin’. That’s 455 difficult days still to go.
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