Glencore International plc plans to raise up to $12.1 billion in a London and Hong Kong IPO, according to a term sheet seen on Thursday, cashing in on a resources boom and giving the trading giant the fire power to grow through acquisitions.
The much anticipated initial public offering, set to value the company at up to $60 billion, will mark the end of four decades of closely guarded privacy for the world's biggest commodities trading company.
The deal will turn many of its executives into instant millionaires, although Glencore has blocked senior management from selling shares for up to five years.
Baar, Switzerland-based Glencore is seeking to capitalize on record-high prices for several commodities and surging demand for metals and other natural resources from fast-growing economies in China and India.
Glencore's IPO has generated a buzz akin to the 1999 float of Goldman Sachs Inc. But some have questioned the fanfare.
"I am not getting excited at all. This is another IPO, it's an equity product and it has got a revenue stream based on buying commodities and buying equities," said Adelaide-based Greg Smith, managing director of Global Commodities Ltd, a commodities trader.
"People are optimistic because they are looking at the commodities and not actually the entity which is Glencore. If they are thinking that they are investing in commodities they are not, they are investing in an equity. They might be getting all pumped up because of the boom in commodity markets, the super cycle," he added.
Glencore, controlled by some 500 partners, reported a 40 % rise in 2010 net profit to $3.8 billion, while revenue climbed 36 % to $145 billion. But slim margins at Glencore's mines and smelters have been a concern for some.
The narrow ratios contrast with better overall margins at its nearest listed rival, Noble Group.
Despite the cautiousness, some investors are keen to participate in the offer. "Glencore is a commodities trader and less vulnerable to commodity prices," said Helen Lau, an analyst at UOB Kay Hian. "The sheer size of trading volume in commodities will continue to rise globally. Investors probably will be very interested in the IPO, given the commodities prices are so high now."
Prices of copper and other commodities have traded at record-highs recently, with the Reuters-Jefferies CRB index, a global commodities benchmark, up more than 8 % since the beginning of the year. The index has been trading near its strongest level since September 2008.
Sources previously told Reuters that Glencore's proposed IPO had received a positive response from potential investors when the firm's management travelled the world to gauge demand for the deal.
Glencore is set to release an intention-to-float document in London later on Thursday, which will be its primary stock exchange listing.
"It is very savvy for them to list in both London and Hong Kong. The appetite for commodity-related shares in Asia is well-known and remains robust," said Kirby Daley, a Hong Kong-based senior strategist of Newedge's prime brokerage unit, which provides services to hedge funds.
The base deal size is set between $9 billion to $11 billion, according to the term sheet. The London part of the offer should raise up to $8.8 billion, while the Hong Kong leg of the deal could raise up to $2.2 billion. After the IPO, the free float is expected to be between 15-20 %.
If a 10 % greenshoe over-allotment is exercised, the total IPO proceeds rise to $12.1 billion. A Glencore spokesman declined to comment.
The deal would be the biggest IPO in London and comes as global stock offerings jumped 12 % in the first quarter of 2011 to $189 billion. Stock offerings in Asia Pacific had their strongest first quarter on record, according to Thomson Reuters data, indicating strong appetite for stock issuance despite tensions in the Middle East and volatility in global markets caused by the devastating earthquake in Japan last month.
Glencore plans to use $5 billion of the IPO proceeds for capital expenditure over the next three years, while another $2.2 billion will be used to increase its stake in Russian mining company Kazzinc. Glencore already owns 50.7 % of Kazzinc, along with a 34.5 % stake in miner Xstrata.
The company plans to announce the price range on May 4 and conditional trading of shares is set for May 19, the term sheet showed.
Glencore will get listed in the benchmark FTSE 100 by the end of the first trading day via a so-called "fast entry rule," according to the term sheet. It should also gain access to some MSCI stock indexes, creating demand from some index-tracking institutional investors and fund managers.
Founded in 1974 by Marc Rich, a trading sensation who fell foul of US authorities, Glencore has grown into the world's largest commodities trader, with subsidiaries employing tens of thousands, and an oil division with more ships than Britain's Royal Navy.
Glencore began as a pure trader of metals, minerals and oil under Rich. It bought its first industrial assets in the late 1980s and has since turned into a diversified conglomerate with assets ranging from Zambian copper mines to farmland across South America.
The company's secretive past and willingness to do business in some of the world's most opaque and unstable regions has raised concerns among some investors and analysts.
Glencore is also expected to name a new non-executive chairman on Thursday -- a requirement for the listing. Three candidates were on the shortlist days before the document was published, including former French Foreign Legionnaire Simon Murray.
Murray, a long-time Hong Kong resident and resources investor, told Reuters this week he was excited by the prospect. "Natural resources are always quite exciting; they tend to turn up in the strangest places. So you get a good view of the world," Murray said. "This is an exciting company, this is absolutely the right sector today, commodities."
The new chairman will sit on an eight-strong board alongside Chief Executive Ivan Glasenberg, an intense, charming South African who joined the firm as a coal trader in 1984. Glasenberg is thought to own as much as 15 % of the company but has never confirmed his stake.
Glencore is expected to sign up "cornerstone" shareholders to its IPO, but these may be made public only when it publishes its prospectus next month. Glencore officials have met in the past weeks with sovereign wealth funds in Asia and the Middle East, and high net worth investors to garner support for the offering.
Citigroup, Credit Suisse and Morgan Stanley are the joint global coordinators for the offer, the document said.