Tuesday, May 17, 2011

Glencore raises price floor for record IPO

LONDON: Glencore is set to price its record listing at or above 530 pence per share, sources close to the matter said, valuing the commodities trader at a minimum of 36.5 billion pounds ($59 billion).

"Investors with price limits below 530 pence are likely to miss out," one of the sources said on Tuesday, May 17.

But top investors warned the world's largest diversified commodities trader on Tuesday to set a final price at or around the 535 pence midpoint or face a drop in value in its first weeks as a listed company.

Glencore, whose $11 billion listing will be London's largest ever, was narrowing its guidance for the second time this week, as pressure mounts for both its bankers and investors, as it prepares to close its order books.

The trader narrowed its initial 480 to 580 pence range to 520 to 550 pence on Monday, according to sources familiar with the deal, lifting the midpoint of the offer marginally to 535 pence.

Glencore had signed up enough buyers to cover its offer within hours of starting the sale process, and now has enough several times over with the book "multiple times" covered.

However, four top fund managers representing houses running more than $1 trillion in assets said that although demand for shares was evident, much of that appetite was from funds who will have to buy into the world's largest diversified trader as it is propelled into the bluechip FTSE index.

"The whole structure of this float does put a squeeze on people because of the technical position. It is going into the index straight away and it will get away because of the cornerstone investors," said one UK investment manager.

Heavyweight cornerstone investors have signed up for around 31 percent of Glencore's initial public offering.



While the immediate aftermath of the listing may not necessarily worry Glencore -- as executives and cornerstone investors are all subject to lock-ins -- analysts say a solid performance will, among other things, give it better currency for acquisitions, a key motivation for the listing.

That includes any future move on rival Xstrata.

"Glencore is looking to set a benchmark valuation on listing and to improve on that as the company starts trading," analyst John Meyer at Fairfax said.

Debate over Glencore's valuation has raged since it announced plans to list, with investors arguing over the discount that should be applied to take account of its unique model and more recently the commodity sell-off.

One manager said meetings with Glencore management in the last fortnight have given his company a better degree of understanding of Glencore's business and the issues affecting its profitability, but few feel they are getting a bargain.

"The key issue for me is what multiple to put on the various assets," a third UK equities asset manager said.

"The Xstrata and other listed stakes are easy enough to value... more complicated is what price to put on the unlisted stakes."

The final price for the offering is due to be set on May 19 and Glencore is expected to close its books on Tuesday, a day ahead of schedule.

"I think the new range looks ok, it's a little rich at the top but (the) bottom half appears fair value ... I get the sense there's enough demand to get this away at the midpoint," a fourth manager said.

Analyst Paul Galloway at Bernstein Research agreed Glencore would be "reasonably but not attractively" valued at the midpoint.

But not everyone is convinced chief executive Ivan Glasenberg's roadshow will be enough to shore up Glencore's shares in the long term as fears about the longevity of the commodities boom abound.

"Glasenberg comes across well, but that's not sufficient reason to own the shares on the proposed rating," the second manager added. Unconditional dealing in London will begin on May 24 and in Hong Kong on May 25. ($1=.6149 Pound) - Reuters

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