Glencore’s peak timing not only echo of Blackstone
By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Is Glencore the new Blackstone? It has become a meme from Wall Street to the City and beyond that the commodity trader’s planned $12 billion initial public offering marks the top of its industry’s cycle, just as Blackstone’s did for private equity. But investors should watch for other similarities when scrubbing Glencore’s prospectus, which is expected as soon as Wednesday.
Prices for the goods Glencore produces and trades — wheat, oil, cobalt, sugar, gold, cotton, you name it — have surged this year, in some cases to all-time highs. For skeptics, that signals a bubble, inflated by the money being pumped into the markets by the Federal Reserve and other central banks.
Hence the obvious comparison with Blackstone, which went public in June 2007 as similarly favorable market conditions made debt cheap and plentiful and spurred record leveraged buyout activity. The private equity firm sold $7.1 billion of its shares at a price that hasn’t been seen in nearly four years. To be fair, the financial crisis intervened and the shares are now recovering. Even so, any IPO investors are still smarting.
Glencore’s boosters would argue that increasing demand for commodities from China, India and elsewhere will last decades. Moreover, the company can hedge many of its bets more easily than Blackstone could. Yet even if that makes equating the timing of the two landmark floats simplistic, it’s still plausible.
Both IPOs also cast unprecedented light on businesses that were previously intensely private. For private equity that included political attention and efforts to tax the industry more heavily. Glencore may face questions of its own as it is exposed to scrutiny, and could end up having to change elements of its business model.
Also worthy of scrutiny when the details emerge will be Glencore’s governance. Technically, Blackstone did not sell common equity. It sold units in a partnership, which conferred many fewer rights. Glencore could do the same. Moreover, like Blackstone, Glencore may sell chunks of stock to sovereign wealth funds. The commodity firm’s size, certain inclusion in the FTSE 100 Index and dominance of its industry make it impossible for global investors to ignore. Boning up on Blackstone may help focus their analysis.