Time for Glencore to start trading itself: Neil Collins

-- Neil Collins is a Reuters columnist. The views expressed are his own --

By Neil Collins

LONDON (Reuters) - There comes a time in the evolution of any large company when it is more painful to stay private than to take the jump to become a public company. That time may be approaching for Glencore International, the world's biggest commodity trader which -- in investors' eyes at least -- looked over the abyss late last year.

With the credit markets closed, commodity prices plummeting and the financial crisis gathering pace, investors dumped the company's bonds. The cost of buying insurance against default shot up, and in December the yield on its 2011 bond broke 30 percent, having traded on a yield of less than 7 percent four months earlier.

Glencore, based in Zug, Switzerland, is a determinedly private business, but the sound of silence that followed the FT's front-page disclosure on 19 June that it was "weighing up" a flotation clearly signals that the move is at least being discussed.

It promises to be quite a show. Even after some poor trading figures and the investors' panic of 2008, Glencore is worth well over twice its last stated book value of $16 billion. It would be curious if that panic has not concentrated the minds of the "partners" who own and control this vast, valuable business.

The prices of the company's $10 billion of debt issues have recovered a long way (and rose further in response to the FT story) but Glencore's reliance on debt has left it exposed should credit conditions suddenly deteriorate once more.

At the height of the investor flight from Glencore's debt in January, it was presented with a fresh problem, as Xstrata (XTA.L), the London-listed miner, sprung a $6 billion rights issue. To avoid dilution of its 35 percent, or having to find the cash, Glencore agreed to sell its coal operation in Columbia for $2 billion, with an option to buy it back for $2.25 billion within a year.

Set against the valuations of mining companies at the peak last year, today's conditions may not look that attractive for a float for a group of individuals who like to sell high and buy low. Yet last year's experience has disclosed large, unexpected risks to the business, and besides, both commodity and mining share prices have recovered strongly from the lows.

Comparators for Glencore are rare, but Noble Group (NOBG.SI), an Asian trading house, sells on twice book value, and has benefited from easier access to credit since listing in Singapore a decade ago.

Twice book would be attractive to those with their capital locked up in today's Glencore. The recovery in prices also makes it imperative for Glencore to exercise its buy-back option from Xstrata, since $2.25 billion now looks very cheap -- as reflected in those Xstrata rights shares that Glencore couldn't afford just five short months ago. Issued at 210 pence each, giving a theoretical ex-rights price of 348 pence, Xstrata shares trade around 680 pence now. No wonder Glencore pledged a prime asset to avoid missing out.