Opinion

Hugo Dixon

Glencore partners eye Goldman-style bonanza

Hugo Dixon
Feb 22, 2011 15:51 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — Glencore’s partners are eyeing a Goldman Sachs-style bonanza. When Goldman went public in 1999, the Wall Street firm’s 221 partners shared a pot worth $16 billion. That was an average of $72 million each. If Glencore launches its initial public offering later this year, there will be an even bigger jackpot for the 500 partners at the Swiss commodity trader: up to $60 billion, according to Liberum Capital. On average, that’s $120 million each.

In both cases, the Croesus-like riches reflect firms at the top of their game. Goldman was the world’s classiest investment bank. It didn’t just connect clients with capital; it also was aggressive in taking lucrative but risky proprietary positions. Similarly, Glencore isn’t just the world’s premier commodities trader. Nearly two thirds of its value is actually in proprietary stakes in mining assets.

But the similarities don’t end there. When Goldman was a partnership, retiring partners would cash in their stakes at book value. That’s also what happens now at Glencore. When Goldman went public, its shares were worth 3.3 times book value. That reflected the goodwill built up over more than a century. The generation of partners that took it public cashed in on the franchise value accumulated by previous generations. The same is now likely to happen at 37-year-old Glencore. Its estimated market value is three times its $20 billion book value. Ivan Glasenberg, the chief executive who is also the largest shareholder, and his fellow partners are the lucky generation.

Incoming Glencore investors might ponder on another similarity. Goldman’s IPO was launched in the heady days of the internet bubble. Its shares went on a roller-coaster, first soaring and then plummeting — before taking off again and collapsing in the more recent credit bubble and bust before again gaining ground. Despite all the volatility, investors that stayed the ride have done well: their shares have trebled.

India corruption travails could presage catharsis

Hugo Dixon
Feb 21, 2011 10:00 UTC

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Hugo Dixon

LONDON (Reuters Breakingviews) – It’s easy to see why investors in India are running scared. Two top tycoons have been hauled in by investigators in connection with a mounting telecoms scandal, inflation is rampant and the government seems paralysed.

The Sensex has dropped 11 percent this year. And the shares of Reliance Communications, chaired by Anil Ambani, one of the two tycoons questioned by police, have been hammered: they are down 36 percent. The other is Prashant Ruia, chief executive of Essar Group. Neither has been charged.

Vodafone wins first round in Essar war

Hugo Dixon
Jan 31, 2011 19:15 UTC

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Hugo Dixon

LONDON (Reuters Breakingviews) – Vodafone has won the first round in its war with Essar. The UK group’s partner in its Indian mobile venture is downplaying a plan to inject its stake into an illiquid shell – a move which could have artificially inflated the stake’s value. Although the saga could have more twists, the most likely conclusion is that Vodafone will pay $5 billion to buy out Essar completely.

Vodafone can feel pleased that it has thrown a spanner into Essar’s plan to pop part of its 33 percent stake in Vodafone Essar into Indian Securities, the listed shell. If

Vodafone wins ground in Indian jv tussle – sources

Hugo Dixon
Jan 31, 2011 14:19 UTC

LONDON, Jan 31 (Reuters) – Indian mobile phone operator
Essar has abandoned plans to inject part of its 33 percent stake
in the Vodafone Essar venture into a listed shell company after
objections by its partner Vodafone (VOD.L: Quote, Profile, Research, Stock Buzz), according to two
people familiar with the situation.

Instead, the partners have agreed to appoint two investment
banks to value the stake in the Indian mobile operator as a
precursor to Essar deciding whether to sell it to Vodafone.

Essar was previously planning to inject an 11 percent stake
into Indian Securities (ISL) (ISEC.BO: Quote, Profile, Research, Stock Buzz), a listed company it
controls. It argued that this would reveal its true value.

Euro zone crisis may be close to resolution

Hugo Dixon
Jan 28, 2011 23:47 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

DAVOS, Switzerland — The euro zone crisis may be close to resolution. There is certainly optimism among policymakers at the World Economic Forum in Davos that a comprehensive deal — involving more discipline by peripheral nations and more help from rich nations — could be put together in coming weeks. If so, the hot phase of the crisis could be over and even Greece would have a fighting chance of getting out of the woods.

There is still no deal. But the stars seem to be coming into alignment. Germany, the zone’s paymaster, clearly realises that it has a strong interest in the single currency holding together — and will do what is needed to make that happen. Peripheral nations also seem to be willing to go an extra mile to give Berlin enough air cover to sell further help to the German people.

Global economy not as healthy as it looks

Hugo Dixon
Jan 25, 2011 20:48 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The global economy is not as healthy as it looks. The International Monetary Fund now predicts 4.4 percent growth for 2011. But inflation has reared its ugly head across the globe, suggesting that many economies are growing faster than can be sustained without structural changes. Spurring on reform should be the main focus of the annual World Economic Forum shindig this week in Davos.

If one wants to look at the glass half full, there are things to feel positive about. The U.S. economy is growing smartly again — the IMF predicts 3 percent this year. China and India should each grow at around 9 percent this year. Even the euro zone may be pulling itself out of crisis.

India needs solution to $1.5 trillion puzzle

Hugo Dixon
Jan 24, 2011 09:45 UTC

– The authors are Reuters Breakingviews columnists. The opinions expressed are their own –

By John Foley and Hugo Dixon

HONG KONG/LONDON (Reuters Breakingviews) – India needs a solution to a $1.5 trillion-plus puzzle. That’s what it will need to invest in infrastructure over the next decade if it is to have any hope of achieving its aspiration of 10 percent GDP growth.

The government and banks, India’s traditional sources of infrastructure funding, won’t be able to carry that load on their own. Financial liberalisation, something the country has hitherto shied away from, could help fill the gap.

India can’t afford to be soft on corruption

Hugo Dixon
Jan 14, 2011 09:18 UTC

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Hugo Dixon

LONDON (Reuters Breakingviews) – India can’t afford to be soft on corruption. The government’s lacklustre response to a series of scandals isn’t just woeful; it is symptomatic of a general lack of reformist zeal which could drag down the country’s medium-term growth.

India’s big success in the past two decades has been to put behind it what used to be called the Hindu rate of growth, roughly 3.5 percent a year. The country achieved an average 9 percent growth in the four years running up to the financial crisis. That dipped to 6.7 percent and 7.4 percent in the last two financial years, but is now back to nearly 9 percent. At some time over the next few years, India’s growth could outpace even China’s, as the Middle Kingdom starts to slow.

India is behind curve on inflation

Hugo Dixon
Jan 10, 2011 09:58 UTC

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Hugo Dixon

LONDON (Reuters Breakingviews) – India is behind the curve on inflation. It’s not just that weekly food inflation has hit 18 percent; the current account deficit is also uncomfortably high.

The authorities need to get a grip, even if that means sacrificing 9 percent GDP growth in the coming year. Structural reforms, not loose policy, are the only sure way to sustain rapid growth.

Can you buck the markets?

Hugo Dixon
Dec 7, 2010 21:12 UTC

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — Can you buck markets? Margaret Thatcher said you couldn’t; Angela Merkel, by contrast, believes in the “primacy of politics”. Who’s right depends on whether politicians have the will to change the unpleasant reality that markets can reflect. The euro crisis is testing this theory to destruction.

In one sense, Britain’s iron lady was right. Markets are messengers — sometimes of doom, at other times of glad tiding. Actions like restricting short-selling of financial stocks, Merkel’s bright idea in May, are pointless. They don’t change reality. Even intervention in the markets — such as the European Central Bank’s sovereign bond-buying programme, which restored calm late last week — only buys time.