Glencore to press on with Hong Kong side of listing despite another volatile day in the commodities markets
Glencore has dismissed another sharp sell-off in the commodities market as "froth" and said that demand for its London and Hong Kong initial public offering remains strong.
The attempt by the Swiss-based commodity trading group to soothe potential shareholders came as a range of assets such as oil, silver and copper endured another volatile day on the back of worries about slowing growth in China, rising inflation and low demand in the west.
But speaking to investors in Hong Kong via a video conference from London, Ivan Glasenberg, the Glencore chief executive, said the decline in the value of commodities was "due to some froth" in the market and that underlying market fundamentals remained positive.
He also hinted that the firm would use some of the $11bn (£6.75bn) of new money that might be raised to strengthen its position in markets such as oil and grains.
"We are weak on the grains side in the United States. We do believe we do need to build infrastructure or acquire infrastructure in the United States in the grains side," he said. "On the oil side, we haven't had the financial power before to look at oil refineries because oil refineries are a bit more costly [to acquire]. Those are the areas you will see future growth."
Industry experts believe it is a good time to buy refineries because the big western oil companies have been selling out after a long period of depressed profit margins. Shell recently sold off its last British plant at Stanlow in Cheshire.
Glencore set a price range of HK$61.24 to HK$79.18 for the Hong Kong portion of the IPO, setting aside at least 31.25m shares for sale to retail investors in the far east from tomorrow.
"The demand for commodities across Asia has played a key role in the growth of Glencore," said Glasenberg, who will become one of Europe's richest men with a paper fortune of almost £6bn after the flotation. "A secondary listing in Hong Kong will enable us to build long-term, mutually beneficial relationships with Hong Kong investors, as we have with customers, suppliers and capital providers worldwide over the years," he added.
Glencore has already set a 480p-580p per share price range for the London portion of the offering. This values it at £36.5bn ($60bn) at the mid-point, which is below the price some analysts say the company is worth, and is seen as an attempt to leave room for the stock to rise after the IPO. It also allows Glencore to reduce the offer price if commodities prices continue to tumble.
A final price will be set next Thursday and Glasenberg insisted there was "strong demand" from potential investors, amid suggestions from some quarters that he had tied up the bulk of the shares to major investors within days of the London launch.
The Glencore boss was asked to comment on various difficult issues that have been raised, including one in Zambia, where authorities claim there may have been "irregularities" in tax submissions by its Mopani Copper Mines business. Glasenberg said this allegation was based on a misunderstanding in an early draft of the tax review.
The price of some commodities have dropped by 30% over the last two weeks alone, hitting the shares of mining houses such as Xstrata where Glencore itself holds a stake.