GLENCORE International shares ended flat this morning amid heavy trading in an indication of continued investor interest in the commodity-leveraged equity, the largest ever initial public offering in the UK.
The London shares of Glencore's dual-listed IPO started the day at 547 pence and traded near that level for much of the day, but finally closed flat at 530p, the same level as the company's final IPO pricing.
Glencore's start suggests continued investor interest in commodities, which are often seen as a strong long-term bet in light of robust demand growth in Asia and other emerging regions. Analysts say Glencore's commodity trading operations also provide a hedge in case commodity prices retreat. Trading across commodities has been volatile in recent weeks amid rising concern about the strength of the economic recovery.
Charles Cooper, equity analyst a Oriel Securities, said Glencore's first day of trading "bodes well for a good start, subject to macro-economic conditions". He said trading volumes were strong and the IPO was reasonably priced based on the fact shares closed flat on the day.
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Another London-base analyst who wished not to be named said the fact shares closed flat rather than significantly higher was a sign Glencore had accurately priced its shares so as not to leave any untapped value on the table.
Glencore priced its IPO at 530p, the midpoint of its previously-announced range, valuing the company at £36.7 billion ($55.9bn). Shares were priced at $66.53 Hong Kong dollars ($8) in a simultaneous secondary listing of its shares in Hong Kong.
The share sale will raise £6.2 billion, prior to the exercising of the over-allotment option, which accounts for 10 per cent of the global share offer. Before Glencore, the largest amount raised from a UK listing was the 2006 joint Moscow and London listing of Russian oil giant OAO Rosneft, which raised £3.6bn from the London listing.
Yesterday marked the start of Glencore's conditional trading -- where shares can be traded on screens but aren't yet delivered. Conditional trading is standard practice in IPOs which allows investors to buy and sell their shares while the regulatory process for listing the shares is being completed. The shares are traded but the transaction isn't settled until the first official or unconditional day of trading. Shares are expected to start official or unconditional trading in London on Tuesday and a day later in Hong Kong.
Glencore will become the first company in 25 years to enter London's FTSE 100 stock index after the close of the first official day of trading in London. It is also eligible for early inclusion in relevant MSCI indexes, subject to MSCI confirmation.
But the IPO comes at a challenging time, when investor appetite for new listings is limited and as commodity-price jitters have taken a toll on mining stocks.
Although the valuation is below some expectations from when Glencore announced in April its intention to go public, a valuation of close to $US60 billion is considered something of a victory for the company and chief executive Ivan Glasenberg, whose shares in the company are now valued at $US9.3bn based on the pricing of the IPO.
Glencore is a 37-year-old natural resource conglomerate that produces and trades commodities such as oil and sugar; owns physical assets, such as ships and mines; and holds stakes in publicly traded companies, including most notably Xstrata, in which Glencore holds a 34 per cent stake.
Glencore plans to use the proceeds from the listing and private placement to increase its stake in Kazzinc to 93 per cent from 50.7 per cent, to cover expected tax liabilities from the listing, and to repay a small tranch of loans made to the company by certain shareholders.
Glencore is also thought to desire a more significant combination with Xstrata.