Glencore International is selling $10 billion in shares in its Hong Kong / London IPO. The timing is something that people should spend a little time pondering.
Glencore represents a lot of the smartest guys in the commodity world. Now that they have announced that they will be cashing out some time in the second or third quarter, you have to ask why the deal is being timed the way it is.
On the one hand, they want to get this deal done while commodities are hot enough to feed investor interest in these new shares. A $10 billion offering may not be a blockbuster these days, but it is still a big enough proposition that they do not want it to go wrong.
But on the other hand, the longer they can delay having to share their profits with shareholders, the less money that the partners have to leave on the table when they go public.
Basel-based Glencore is no mere trading desk, but owns huge stakes in some of the world’s leading miners like Xstrata (XSRAY), in which it holds about 34% of the outstanding stock. Overall, its holdings may be worth $45 billion to $50 billion.
The firm saw its profits surge 43% last quarter, largely on iron and other metal trades. Given that kind of growth, the IPO looks like it could value it at a fairly reasonable P/E of 12 to 13 or even cheaper.
The trick is keeping the rally going at least through the IPO. Either way, remember the old advice about how the smartest guys sell out at the top? That may not happen in commodities before the second or third quarter — at least. And that is good news for the metals, the softs, the food trade.