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Glencore may sell off trading business after £60 bln IPO

Published: 23:43 15 Apr 2011 AEST

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Glencore International may sell off its lucrative trading arm after its £60 billion London and Hong Kong listing, according to analysts at Fairfax Securities.

Yesterday the Swiss commodities giant confirmed plans to go public. It is selling between 15 and 20 percent of the business, which will raise as much as £12 billion.

Glencore owns one of the world’s largest commodities trading business. As a privately run entity it was allowed to operate outside the public glare. And this has suited a business where confidentiality is key.

However a shift to the public markets is likely to lift this veil of secrecy.

In fact that process began yesterday as the enormity of Glencore’s reach in the commodity market started to become clear. 

The trading arm of the business, which constitutes an estimated 30 percent of the group’s value, dominates the world’s third party commodity trading.

For example it reportedly controls more than half of the worlds zinc trading, about 45 percent of lead and 30 percent of all copper and thermal coal trading.

“Trading companies don’t usually sit well on public markets,” Fairfax mining analyst John Meyer said in a note to clients this morning.

“(Glencore) is not going to want to reveal too many secrets.  

“Their dominance in trading some key commodities may spark regulatory inspection and may work against Glencore’s traders in certain ways.  

“There will always be those who look to break down this sort of near-monopoly and any news on trading margins is sure to be met with calls for better prices from consumers.”

A quick sale of the trading arm might provide a neat solution, the analyst adds.

The trading business is just one part of the company. Overall it is a producer and marketer of commodities with worldwide activities in the marketing of metals and minerals, energy products and agricultural products as well as their production, refinement, processing, storage and transport. 

It also has a number of strategic investments and it plans to expand with a new acquisitive strategy, helped by the new cash injection. 

It has already agreed to acquire most of the Kazzinc business – increasing its stake from 50.7 to 93 percent, with an US$3.2 billion outlay.

And speculation is already building regarding a possible tie-up with Xstrata (LON:XTA). Glencore currently has a 34 percent stake in FTSE100-listed miner. 

“Glencore has some solid ideas for the use of its new cash and is going to expand its mining business,” Meyer added. “(It) may merge or even take over Xstrata but may equally continue grow its own business through acquisition and organic growth.”

 

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