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Friday, 15 April 2011

Does Glencore IPO Signify an end to the Commodity Bull Market?

Global Energy and Commodity Resource or Glencore for short has finalised plans for its duel listing IPO pencilled in for May this year. This IPO has been one of the most eagerly awaited public offerings in years, especially in light of the ongoing surge in commodity prices.

The duel IPO listing will take place in both London and Hong Kong, with the offering valued at $11bn, which represent approximately 15-20% of the company. This IPO has valued the commodity trading company (the worlds largest) between $55-$60bn. Now that the company's cheif executive Ivan Glasenberg has announced the IPO, the shear scale and reach on the companies operations globally have been fully exposed.


Ivan Glasenberg, Glencore's CEO said the IPO is the first step in the companies strategy to expand its already enviable global commodity portfolio. Glencore already has a dominant position in zinc and copper and also has a 34% stake in the mining giant Xstrata a company valued at $68bn.

Glasenberg in rare public statement said about Glencore

"Over many decades, we have developed Glencore into an unrivalled global integrated commodity producer and marketer, active in almost every bulk commodity market. An IPO is the next logical step in our development and strategy. It will provide us with the financial flexibility to capitalise upon long-term growth opportunities throughout our business and achieve further sustainable growth. It will also offer international investors an opportunity to invest in our unique commodities business model and participate in our future growth."

However Glencore's IPO has led investors and commentators to believe that the commodity bull cycle is nearing its end, especially in light of Goldman Sachs recent comments about the sector. 

This has been highlighted in a recent article by the Wall Street Journal columnist Andrew Ross Sorkin. Sorkin states that both companies are secretive about the business activities, both stalwarts in their industries and they are both are powerful and influential in partnerships at their cores. 

Mr Sorkin also adds that the timing of Glencore's IPO is strikingly similar to that of Goldman Sachs. Goldman went public back in 1999 right in the middle of the dot-com boom and when financial institutions were generating substantial fees in the frenzied IPO era. Now today Glencore is due to list in May this year at the height of the commodity bull market.

Goldman Sachs raised $3.7bn from its IPO after the shares of the company soared 33% on the first day of trading, one year later the stock tumbled in the aftermath of the dot-com collapse. The same has also been applied to private equity listings, particularly blackstone (see video below)

Glencore's IPO comes at at a time when zinc, copper are near record highs and gold and silver have this week touch all time highs. However it is felt that the listing could signal the end of the commodity bull market.

A fear which was heightened this week after Goldman Sachs warned investors to begin taking profits in some specific commodities i.e. oil and copper.

However according to the zerohedge a highly respected financial blog, the Goldman Sachs call on commodities may not be totally justified.

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