Glencore International plc

Aleksander | Alvin | Quyet Thang | Ying Ling | Zhao Yu
1

Agenda
Were the decisions made by Glencore in line with its business strategy?

Why choose IPO?

Was the timing of IPO correct? Was the decision of re-acquiring Prodeco a good move?

Introduction

3

Company Background
• Leading integrated producer and marketer of

commodities
• Metals and minerals, energy products and agriculture products • Operates in 30 different countries • Multiple interest in business related firms

• Biggest IPO in LSE and HKEX

Introduction

Company Background | Business Segments | Operations | Business

4

Business Segments
Metals & Minerals Marketing Activities Industrial Activities Energy Products Marketing Activities Industrial Activities

Main assets: Xstrata (34.5%), Katanga (74.4%), Kazzinc (50.7%), Mopani (73.1%) Agricultural Products Marketing Activities Introduction

Main assets: Prodeco (100%)

Industrial Activities
Source: Glencore Annual Report

Company Background | Business Segments | Operations | Business Strategy 5

Worldwide Operations Introduction Company Background | Business Segments | Operations | Business 6 .

Geographical Footprint Introduction Source: Glencore Company Report. Bloomberg Company Background | Business Segments | Operations | Business 7 .

Bloomberg Introduction Company Background | Business Segments | Operations | Business 8 .Geographical Footprint Source: Glencore Company Report.

Business Strategies • Increasing geographic scope and diversification of operations • Capitalizing on strategic investments in business related assets • Using additional capital and liquidity to grow the business • Focusing on cost management and further enhancing logistical capabilities • Maintaining conservative financial profile and investment grade ratings Introduction Company Background | Business Segments | Operations | Business Strategy 9 .

IPO Listing 10 .

3% • Glencore’s valuation based on IPO’s share price: $60 billion IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 11 .Overview of IPO • Issuer: Glencore International Plc • Date: 19th May 2011 • Securities offered: Ordinary shares • Offer price: 530 pence • Free float: 18.

IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 12 .Initial Intentions to Float Earlier • Glencore had the intention to float in 2008 • Commodity price peaked in June 2008 but dropped thereafter Souce: Bloomberg. Only include IPOs of amount larger than $10 million.

Impact of the Financial Crisis • Glencore also faces financial distress during this period • High CDS price means higher chance of bankruptcy  Glencore would raise less capital in 2008 than they did in 2011 Souce: Bloomberg IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 13 .

Only include IPOs of amount larger than $10 million. IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 14 .Impact of the Financial Crisis Significant fall in the number of IPOs during 2008 and 2009 Number of IPOs 250 200 150 100 50 0 180 160 140 120 100 80 60 40 20 0 2006 2007 2008 2009 2010 2011 IPO on LSE (all industries) IPO Worldwide (Basic Material) Souce: Bloomberg.

Marketing Activities % Shares Industrial Activities 2008 6.311 % Shares 53% 59% 62% 67% IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 15 .323 2010 6.201 2.834 Projected 2011 7927.572 2009 3.606 41% 2.Rationale for IPO in 2011 • Changing business structure .a shift from marketing to industrial activities – Required huge capital expenditure (US $'million) Adjusted EBITDA preexc.2 2.215 47% 3.929 1.616 33% 5.367 38% 3.787 3.

Rationale for IPO in 2011 • Why was IPO the best choice at the time? Internal Financing Not enough to fund billion-dollar acquisitions Debt financing Possible credit rating downgrade IPO Right timing Decreases the financial leverage IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 16 .

With the commodities price rally in 2011.000 $150.000 $50.044 200 150 100 50 0 $200.364 1.000 $100.336 1.340 3.236 1.978 4.Right Timing US$ Million Total revenue Operating profit Net profit 2010 144.967 1.7 billion • Glencore’s financial performance is linked to the commodity market . Glencore was at its best performance at the time of the IPO IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 17 .000 $- 2006 2007 2008 2009 2010 Total Revenue Commodity Price Index Net profit in 2010 increased 118% to $3.751 2009 106.633 2008 152.

Right Timing April 14 Announceme nt May 19 Global Offer IPO Listing • Commodities have been on the rally since 2009 • The value of Glencore’s assets is highly correlated with the commodity prices  High commodities prices led to high analyst valuations Overview | Rationale | Timing | Dual Listing | Analysis of IPO Souce: Thomson CRB Index 18 .

8 billion – Hong Kong Stock Exchange • Attract global initial offering volume • US$2.2 billion – Lock-up period • Board and Executive directors • Senior managers IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 19 .Dual Listing of IPO • Dual listing – London Stock Exchange (LSE) • The primary listing place • US$8.

orders well above $32 billion – Reflects the economic situation • Cornerstone investors (including Singapore GIC) were allocated 31% of the global offer IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 20 .IPO Performance • 530 pence and HKD 66.53 per share • Oversubscription – Four to five times.

95pp (35%lower) IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 21 .347.Post Performance 14th June: 500pp  10% lower 24th May-24th August530pp .

95pp (35%lower) IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 22 .Post Performance 14th June: 500pp  10% lower 24th May-24th August 530pp .347.

Post Performance IPO Listing Overview | Rationale | Timing | Dual Listing | Analysis of IPO 23 .

Capital Structure 24 .

sugar.4%) Kazzinc (50.Business Risk GLENCORE • Diversified business Metals and Minerals Energy Products Agricultural Products Xstrata (34.5%) Katanga (74. Marketing Activities (Trading) Capital Structure Industry Activities (Mining) Source: Glencore company report Business Risk & Financial Risk | Capital Structure Analysis | Equity 25 .7%) Mopani (73.1%) Prodeco (100%) Grains. cotton. oils. etc.

000 $100.000 $60.000 $160.000 $80.000 $$’ 000.000 140 120 100 80 60 $40.000 2006 2007 Total Revenue 2008 2009 Commodity Price Index 2010 Capital Structure Source: Glencore company report http://www.indexmundi.com Business Risk & Financial Risk | Capital Structure Analysis | Equity 26 .000 40 20 0 $20.Business Risk • Strong exposure to the commodity market 200 180 160 $120.000 $140.

000 20% 0% $23.589 120% $30.405 $18.000 80% 60% $10.000 40% $5.000 100% $- 2006 $’ 000.000 $20.755 $15.Financial Risk • Increased Debt $35.132 180% 160% 140% $25.000 $30.000 2007 Total Borrowings 2008 2009 Debt/Equity Ratio 2010 Capital Structure Source: Glencore company report Business Risk & Financial Risk | Capital Structure Analysis | Equity 27 .000 $20.316 $16.

Implication • Uncertainty in economy • Rising debt levels Economy Debt Capital Structure Business Risk & Financial Risk | Capital Structure Analysis | Equity 28 .

54 2009 0.Capital Structure in 2011 • Lower debt • Higher cost of capital • Higher financial flexibility $3.73% 6.6bn Tax Shield 1H2011 Debt/Equity Ratio (long-term debt only) Debt/Equity Ratio WACC Capital Structure 2010 0.83 8.60 0.30 2006 0.19 2007 0.76% 8.69 1.85 1.42% 7.41 2008 0.30% Business Risk & Financial Risk | Capital Structure Analysis | Equity 29 .11% 7.93 1.68% 6.98 1.64 1.53 0.

54 2009 0.36 1.50 2.42% 7.38 1.Implications of Sticking With Old Structure • High Debt/Equity ratio • Possible downgrade of credit rating • Higher cost of capital 1H2011E Debt/Asset Ratio Debt/Equity Ratio WACC 0.68% 6.36 1.53 6.30% Capital Structure Business Risk & Financial Risk | Capital Structure Analysis | Equity 30 .11% 7.30 1.19 2007 0.23 Higher Higher 2010 0.76% 8.41 2008 0.30 2006 0.34 1.

Change in Equity Structure Source: Glencore company report Capital Structure Business Risk & Financial Risk | Capital Structure Analysis | Equity 31 .

142 billion convertible bonds were issued in 2009 5.000 shares) of Glencore’s equity Capital Structure Source: Glencore report Business Risk & Financial Risk | Capital Structure Analysis | Equity 32 .435.5% (403.Convertible Bonds $2.

Cornerstone investors) Ivan Glasenberg 15% Other Glencore partners Shares from convertible bond Capital Structure Business Risk & Financial Risk | Capital Structure Analysis | Equity 33 . Cornerstone investors) Ivan Glasenberg Other Glencore partners 47% Exercise price of at least 361 pence Cornerstone investors 5% 5% Tor Peterson 4% 4% Alexander Beard Telis Mistakidis 6% 11% 16% 6% Daniel Mate Badenes 45% 11% New shareholder (ex.Convertible Bonds Cornerstone investors Tor Peterson 5% 4% 5% 6% 6% Alexander Beard Telis Mistakidis Daniel Mate Badenes New shareholder (ex.

Re-acquisition of Prodeco 34 .

Overview Fully owned subsidiary of Glencore 3rd largest exporter and thermal coal producer in Colombia Explores. produces and transports high-grade coal Market – Europe & North America 2 opencast mines Operation Port facilities s Railway Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 35 .

Timeline of Prodeco’s Acquisition 1995 1998 March 2009 March 2010 • Purchase of Prodeco’s operations in coal development project • Establishment of Glencore coal • Acquisition by Xstrata plc • Re-acquisition by Glencore 1995 2009 2010 present Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 36 .

023bn to provide sufficient funds for participation in rights issue Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 37 .Analysis of Prodeco’s Acquisition by Xstrata To provide Glencore with sufficient funds for participating in Xstrata’s rights issue Largest stakeholder of Xstrata with 34.5% ownership interest Cashstrapped during rights issue US$504m net income in 1Q 2009 Sale of Prodeco at $2.

of outstanding shares after rights = 2.048.000 No.000 1.800 1.448.000 1.882.000.040.176.00% 0 1.800 338.Analysis of Prodeco’s Acquisition by Xstrata Issue price = £2. of outstanding shares before rights = 488.100.67% 0 Total Outstanding 10.000.100.240. of Shares Outstanding Share Ownership Before Rights Participation After Rights Before Rights After Rights Dilutio n 3.000 00 Shares 338.014.0 980.000 2.10 Closing price = £6.00 0.764.529.200.231.300.882.100.048.000.23 No.940.000.000 No.000 -66.000 Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 38 .00 Without Participation 338.588.000 3.

67% with the 2-for-1 rights issue • Smaller share of the pie for dividends distributed • No longer the largest stakeholder Sale of Prodeco • Call option granted to re-acquire within 12 months at a premium price Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 39 .Analysis of Prodeco’s Acquisition by Xstrata Possible consequences of not participating in rights issue: • Share dilution of 66.

Re-acquisition of Prodeco Call option exercised on 5th March 2010 US$2.25bn including other notional profits accrued from 1 Jan 2009 & net balance of cash invested by Xstrata Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 40 .

9m 10m tonnes tonnes 2015 20.75% between 2009 to 2010 – Expansion in coal production 2013 2010 19.Why Exercise Call Option? • High valuation of Prodeco at $4 to $5 billion – Increase in Prodeco’s revenue by 20.7m tonnes • Important driver for Glencore to continue generating growth in mining sector Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 41 .

Why Exercise Call Option? • Prospective IPO – Prodeco would be able to attract a high valuation during the IPO – Glencore intended to channel 13% of IPO ($919m) proceeds to Prodeco for investments in infrastructure 13% 4% 6% Debt repayment IPO expense Kazzinc additional stake 12% 32% Capex (expansion project in Kazzinc) Capex (expansion project in Mopani) Capex (expansion project in Prodeco) 8% 12% 13% Capex (expansion project in West African Oil Assets) Capex (expansion project in Glencore's other industrial assets) Distribution of Proceeds from IPO Source: Glencore IPO Prospectus Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 42 .

Why Exercise Call Option? • Greater dividends from Xstrata – Flexibility for Xstrata to deliver 50% volume growth by 2014 (CAPEX) – Growth in Xstrata  greater dividends for Glencore shareholders • Future of Coal – Increase in coal price by 20-30% during re-acquisition – Demand for coal likely to increase in future Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 43 .

6bn in 2010 – US$2.2bn in 2009 to US$13.4bn accounted for exercising call option Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 44 .Implications of Re-acquisition • Sources of finance for re-acquisition – Net cash generated from operations – Sale of $1bn worth of assets for $400 million • Desirable? • Increase in net debt from US10.

Implications of Re-acquisition • Business was considerably unaffected as increased earnings and operating cash flow compensated for the increase in net debt – Debt coverage ratio remained largely unchanged • Investment ratings remained unchanged (BBB-) Re-acquisition of Prodeco Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications | 45 .

Challenges Ahead 46 .

Challenges Ahead Fall in commodity prices is likely to negatively impact Glencore’s financial position Possible excalation of the sovereign debt crisis Increasingly strict environmental regulations Challenges Ahead 47 .

Conclusion & Outlook 48 .

Conclusion Were the decisions made correct? IPO Listing • Allows investment in other industries • Expansion in current businesses • Allows further acquisitiondriven growth Reacquisitio n of Prodeco • Helps Glencore strengthen its position in mining industry • Improve financial position of Glencore 49 Conclusion Conclusion | Future Outlook .

China & India) Conclusion Conclusion | Future Outlook 50 .Future Outlook • Use cash obtained from IPO to buy shares of related companies at discount • Decrease in reliance from metal & minerals business segment – Purchase stakes in companies in the research and production of biodiesel • Focus on emerging markets (e.g.

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