When such a large scale IPO hits the market, there are some concerns as whether this is a sign of the commodity cycle peaking. The Glencore IPO is the largest since General Motors sold shares in November, and will give Glencore a value of $61 billion if priced at the midpoint of its offer range. There are signs of market over-heating with the IPO demand having been enough to sell the shares on offer in Glencore more than twice over. To put things in relative perspective: a valuation of as much as $60 billion would place Glencore within $10 billion of Anglo American (LON:AAL) , the world’s sixth- largest mining company by market value, and ahead of Morgan Stanley (NYSE:MS), one of the biggest commodity traders on Wall Street.
Glencore (LON:GLEN) has been a private-run company and a lucrative operation and would expect to have more market intelligence than most others. In the short term I wouldn’t be surprised if we see a market correction/ pull-back but there is a long term growth story here.
Note: London listed shares are expected to be listed in the 480-580p price range.
1. Glencore is a good, diversified business. Not only are they continuing to expand their traditional commodities trading business, they are also investing in upstream business. That is where it will bring in value for investors long term. Going forward, Glencore should benefit from global economic recovery.
2. To be pricing Glencore over $55 billion seems way out of line, I would not buy that. Under $50 billion it may be worth a bid, but even then there’s the outlook consideration for commodities. I’m favourably biased towards commodities but increasingly I am taking a cautious stance especially given developments in China.
3. I believe one will be able buy Glencore cheaper once listed. It is way below benchmark allocation because we already own the likes of Xstrata… If we price Glencore at this rate, we by the same hand are underpricing Xstrata.
The commodities sector is peaking and toppy, and the timing of this flotation is more attractive to Glencore management than it is for investors.
Note: Glencore’s IPO is good news for all debt holders and particularly good for the strategic investors holding Glencore’s convertible bond as they will almost double their money in a timeframe of…
AJ Sangha is an active investor and may have financial interests and holdings in any of the topics about which he writes. The views expressed are solely those of Mr Sangha. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations. Readers are urged to seek professional advice before making any investments.