Abu Dhabi Aabar commits $850 million to Glencore IPO: term

HONG KONG Wed May 4, 2011 6:44am EDT

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HONG KONG (Reuters) - Abu Dhabi's Aabar Investments has committed to invest $850 million in Glencore International AG's $10 billion initial public offering (IPO), becoming the biggest cornerstone investor in the offering, according to a term sheet seen by Reuters on Wednesday.

Government of Singapore Investment Corp (GIC), which is already a Glencore bondholder, has injected $400 million into the IPO, making the Singapore fund the second-biggest cornerstone investor.

Such investors back many Asian listings, committing to take large, guaranteed stakes and in return agreeing to a lock-up period during which they will not sell their shares. In Glencore's offer, cornerstones have agreed to a six months lock-up, the term sheet added.

The "accounts have agreed to subscribe as cornerstone investors for shares at any price in the range. The tranche...was oversubscribed," the term sheet showed.

Glencore, which set a price range of 480 to 580 pence each for the offer, said it had struck agreements with cornerstone investors who will take up around 31 percent of the total offer, one of the largest cornerstone books to date.

Middle Eastern funds have played a big role in Asian IPOs of late and some are sitting on handsome profits from their previous investments.

Last year, Kuwait Investment Authority plowed $1 billion into AIA Group Ltd's IPO, which has generated about a 33 percent return over the past six months.

Cornerstone investors commit to investing in an IPO before its price is determined. The dominance of mutual funds in the United States and European IPO markets precludes the need for cornerstones there, so this kind of early investor is unique to Asia.

BlackRock Inc has agreed to invest $360 million, the term sheet showed, while Eton Park and York Capital have agreed to invest $200 million each.

UBS Private Bank, Zijin Mining and fund manager Pictet & Cie have agreed to buy $100 million worth of shares in Glencore. Fund manager BlackRock, GIC and Zijin have already invested in Glencore's convertible bonds.

Other cornerstone investors include Credit Suisse Private Bank and Och Ziff, both agreeing to buy $175 million worth of shares, the term sheet showed.

Usually, cornerstone investors take up about 20 percent of medium-size IPOs. But in Agricultural Bank of China Ltd's record $22.1 billion IPO last year, about 25 percent was sold to cornerstones.

"The demand from cornerstones was incredibly strong. It's evidence of the momentum that is building up in the deal. There is no shortage of interest," one source familiar with the Glencore offer told Reuters.

The presence of cornerstone investors also helps to generate demand from institutions and retail investors.

The presence of traditional money managers such as Fidelity and Pictet as cornerstone investors has surprised some.

"People are seeing the momentum building in the deal and some are a bit concerned that they may not receive what they want," the person added.

Some cornerstone investors were brought into the deal directly by Glencore's chief executive, Ivan Glasenberg, the person added.

"Glasenberg is very adapt at developing relationships with key players globally. For some, it's starting from ground zero and leveraging the bank relationship, but a lot of the big important funds, Glencore already knows these people," the person added.

Some big names that failed to show up as cornerstone investors include, Qatar Investment Authority and China Investment Corp. Talks with China's sovereign wealth funds were stymied by the funds' cumbersome processes for deciding on and approving major investments, another source told Reuters.

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