LAUSANNE, Switzerland, April 16 (Reuters) - Privately held commodity merchants will face mounting pressure to list shares as they compete for capital to fuel their expansion beyond trading, senior executives said on Tuesday.
Glencore raised more than $10 billion via an initial public offering in 2011, although major rivals such as Vitol and Mercuria have so far not followed suit.
But that could change as competition heats up among top players to buy assets and increase control of supply chains in the face of slim profit margins.
“I‘m not sure that in the next phase, the next five years, we can necessarily stay private. It depends on the access to capital,” Serge Schoen, chief executive officer of private trading house Louis Dreyfus said at the FT Global Commodities Summit.
Bunge’s chairman and chief executive Alberto Weisser said the quickening pace of consolidation would heap further pressure on private firms to list.
“I believe that we will see some more companies going public because we have seen that it is necessary to be very large and probably even larger. There needs to probably be even more consolidation,” Weisser told the conference.
Yusuf Alireza, CEO of Noble Group, said the need to access new forms of capital would only increase in coming years due to banking regulations.
For example, the so-called “Basel III” regulations - to be phased in from next year - require higher levels of capital and reserves at banks, which will make commodities lending more expensive.
“The clear implication of Basel III is that the cost of funding from banks is going higher so the advantage of being able to access capital markets for funding is going to increase,” he said.
A public share offering gives access to long-term, inexpensive capital, although it also means more scrutiny for trading companies working in a sector that has traditionally sought to conceal strategies in a competitive environment.
But concerns about transparency may act as less of a deterrent in future.
Trafigura and Louis Dreyfus are already facing greater disclosure requirements due to bond listings. Gunvor said on Tuesday it was planning to follow suit with a 5-7 year $300 million bond.
“The transparency of the private firms will have to increase,” said Cargill chief executive Greg Page.
Even if trading firms do not opt for a full initial public offering (IPO), they may list a portion of their business, according to executives.
“What we might see and we have seen is some of the assets spun off into the public domain,” said Mercuria chief executive Marco Dunand.
Mercuria is seeking to sell up to a 20 percent stake to a strategic investor, but Dunand reiterated on Tuesday that there were no plans for an IPO.
Vitol’s CEO Ian Taylor said: “It’s horses for courses. If you want to go into heavily capital-type assets you’re going to go more public inevitably.”