Analysts grapple with Glencore as trader trails IPO

Mon Feb 28, 2011 7:14pm EST

* Glencore to hold second day of equity analyst briefings

* Presentations form part of education process on firm

* Firm well-known to banks, bondholder and rating agencies

By Quentin Webb and Julie Crust

LONDON, March 1 (Reuters) - Leading mining analysts will spend a second day in lengthy briefings with senior Glencore [GLEN.UL] executives on Tuesday, seeking to understand a partnership that is simultaneously the world's biggest commodity trader, a sizeable miner, and a big investor.

Top officials from the Swiss firm would spend another day in London meeting with equity analysts, said people familiar with the situation, who declined to be named. The briefings come as Glencore ponders whether to press ahead with what could become London's biggest-ever initial public offering (IPO).

As a big borrower, Glencore is already well-known to banks, bond investors and credit rating agencies, but it is far less familiar to the equity analysts whose research would ultimately underpin a successful flotation.

And unlike credit analysts, who focus mainly on a borrower's risk of defaulting, their equity colleagues may have a tougher time assessing Glencore's worth to public investors.

So far, estimates of its value are scarce, although Liberum Capital in January suggested the firm, currently owned by its 500-odd senior traders and other partners, could be worth about $60 billion.[ID:nLDE71N1HS]

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The biggest company you never heard of [ID:nLDE71N2CM]

Factbox on Glencore's trading rivals [ID:nLDE71N1PT]

Factbox-Glencore: a $60 bln company? [ID:nLDE71N1HS]

Factbox-Glencore: four decades in shadows [ID:nLDE71N1GO]

Breakingviews comment [ID:nLDE71K0M0]

DealTalk on IPO window in next few months [ID:nLDE71H0EV]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Analysts will have to gauge the value of three disparate businesses: its market-leading commodity trading arm; a series of stakes in other miners, such as Xstrata XTA.L; and a string of mines, smelters and other "physical assets" Glencore owns.

Once they have built their valuation models and assessed the risks involved in Glencore as an equity investment they are expected to publish pre-IPO research that will form the basis of investor decisions on whether to back a flotation.

On pure valuation grounds, Glencore is likely to argue its core business is grounded more in trading, since such businesses command higher valuations.

Singapore-listed Noble Group, a smaller rival trader, is valued at a price of 12.9 times forward earnings, according to Starmine data, while miner Anglo American is on just 8.2 times.

Glencore's stakes in other businesses are likely to be valued at a discount, as is often the case with listed investment vehicles.

On top of that are the complexities of making long-range forecasts for the value of commodities such as copper that have fluctuated wildly in price in recent years, and assessing the political risk inherent in operating in countries such as Democratic Republic of Congo, Colombia and Kazakhstan.

Investors have already shown an interest in Glencore's equity through a convertible bond it issued in December 2009.

And Qatar, one of the sovereign wealth funds flagged as a possible "cornerstone" shareholder, added further weight on Monday by saying it may invest in Glencore and would meet the company in Doha this week.[ID:nWEB2076] (Additional reporting by Kylie Maclellan, Alexander Smith and Eric Onstad; Editing by Gary Hill)