Money
Glencore falls on HK stock debut
By Yuriy Humber and Kana Nishizawa (China Daily)
Updated: 2011-05-26 10:45
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World's biggest commodities trader registers a lackluster perfomance
TOKYO - Glencore International PLC's debut on Wednesday in Hong Kong in the world's biggest initial public offering this year may tempt investors to switch from rival Asian commodity traders.
Glencore, based in Baar, Switzerland, began trading in London last week and has a market value of $59 billion, making it the world's biggest listed trader of commodities by capitalization, surpassing Japan's Mitsubishi Corp. Its size has won it fast-track entry to seven FTSE indexes including the benchmark FTSE 100. The Hong Kong IPO may herald more.
Noble Group Ltd, the Hong Kong-based commodities trader that Glencore names as a rival in its prospectus, dropped 3.4 percent since the Swiss company's May 19 London listing even after posting record earnings a week earlier. The benchmark index in Singapore, where Noble is listed, has dropped 0.9 percent, the same as Glencore's London shares.
"The market was concerned that funds might switch" from Noble to Glencore, said James Koh, an analyst with Kim Eng Holdings Ltd in Singapore, who said some of his clients have asked about the possibility. "People may want to switch as the latter is five times bigger" and has "improved financial muscle from the IPO. But it's not a mutually exclusive trade."
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The Swiss trader, which deals in materials including coal, oil and grain, broke with more than three decades of operating as a closely held partnership to raise $7.9 billion from the sale of new stock, with the rest going to current holders. Twelve cornerstone investors bought shares, including Abu Dhabi's Aabar Investments PJSC and BlackRock Inc.
The two BlackRock funds with the biggest number of Noble shares, accounting for 1.56 percent of the energy, metals and food supplier, sold about 3 percent of their stock in April, according to the latest filings tracked by Bloomberg. BlackRock, the world's biggest listed money manager, owns at least 1.5 percent in each of Japan's six traders, with its holding in Marubeni Corp at 6.8 percent, according to the filings.
Noble Group's Chief Executive Officer Ricardo Leiman said he's not concerned that a listed Glencore would make life more difficult for his company as the two already compete for assets. "We very much welcome a large number of peers that are comparable to us to a certain degree, which we think will be quite beneficial to bringing a new set of investors" to the industry, Leiman said this month on a conference call.
The fact the Hong Kong portion of Glencore's IPO accounted for just 2.5 percent of the offer hasn't deterred Asian interest.
"It's definitely attractive", said Masahiko Ejiri, a Tokyo-based fund manager at Mizuho Asset Management Co, which oversees $41 billion, including shares of Hong Kong and Chinese mainland companies listed in the city. "It's a leading company with strong business and track record. But, the sector is very cyclical and I'm not sure if this is the best time" to invest. Ejiri said that he doesn't plan to buy Glencore now.
Commodities suffered the sharpest pullback in prices in two years last month amid concern global economic growth may slow. Standard & Poor's GSCI spot index of 24 commodities has lost about 10 percent since Goldman Sachs Group Inc told investors to sell holdings in the segment. Glencore's market value alone is enough to force investors to watch the stock, said Alex Au, the managing director of Richland Capital Management Ltd, which oversees about $300 million of assets.
"I don't think it's very attractive, but because of its market cap and its going into the index it would generate a lot of interest," Au said. "You can partly compare it to Noble, but I would say Glencore is more like a commodity play rather than a trading company. And the scale is very different."
Noble posted $606 million in net income for 2010 compared with Glencore's $3.76 billion. The Swiss trader's profit margin was 2.56 percent to Noble's 1.07 percent. Mitsubishi's net profit for the fiscal year ending March 31 was $5.42 billion, with a margin of 8.9 percent.
For Asian investors to switch to Glencore, the Swiss company will need to show how it can make more money trading the same commodities as its rivals, said Ben Collett, head of Japan equities at Louis Capital Markets HK Ltd.
"Whenever a new stock enters the sector, other stocks are sold or there is a re-jigging of the sector allocations," Collett said. "I don't think that will be discernable now in the Japanese traders, but after a period of time and trading history, Japanese investors who can invest abroad may look at Glencore and the swap trade may look attractive."
Bloomberg News
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