STEVE KALMIN IS the chief financial officer of Glencore, perhaps the most talked-about company of the past 12 months.
Glencore is a commodities firm that recently undertook the biggest IPO in the history of the London Stock Exchange and the largest ever non-privatization IPO in Europe. In 2010, it posted adjusted ebitda of $6.2 billion on revenues of $145 billion. Some of the world’s most influential sovereign wealth funds and investment firms rank among the company’s shareholders.
Kalmin is part of a management team that more than one banker describes as "among the best I have ever worked with".
And yet Kalmin wants to keep as low a public profile as possible, despite being CFO at one of the 20 biggest companies on the FTSE100. When Euromoney approached Glencore in the summer to ask to talk to Kalmin and his chief executive Ivan Glasenberg about one of the landmark deals of the past decade, the initial reluctance was telling.
After some cajoling, the offering up of written questions and gentle prodding from the company’s bankers, Kalmin agreed to a telephone interview with the proviso that he might not allow himself to be quoted. Eventually, he agreed to go on the record but no photo would be provided. Kalmin, like Glencore itself, is wary of publicity.
Glencore polarizes opinion. On the one hand it submitted itself to the IPO process, the most public scrutiny a company can have, but it is loth to cast off the secretive nature that has often defined the business since its inception in 1974 by Marc Rich.
Few deals have divided opinion as much as the $10 billion IPO the company launched in the teeth of turbulent equity markets in May. Bankers say Glencore’s management did a brilliant job. Investors sitting on losses of close to 20% since then might beg to disagree.
Two faces of an IPO
When Euromoney finally catches up with Kalmin, in mid-September, he has just spent three weeks going from meeting to meeting with shareholders after Glencore announced its half-year results.
Clearly, the performance of the stock since the IPO has been a regular subject of conversation.
Kalmin says: "In the main, investors are still supportive and philosophical about it. It’s important to also look at the movement on a relative basis and over a longer period going forward as we’ve been in the midst of a risk-reduction phase since June and July. Almost all of our top shareholders have continued to maintain their sizeable presence on our share register since the time of the IPO."
Looking back at the deal, he says: "We never intended to be aggressive on price and leave a bad taste in anyone’s mouth. It was always the plan to leave some money on the table. We felt it was priced fairly at the time, taking into account the market and shape of the book, which was heavily oversubscribed at every point in the price range. However, complete visibility on markets is often a challenge."
What’s not in doubt is that the deal was a strategic success for Glencore. It secured valuable proceeds that arm it to build its production and snatch acquisitions even as others in the sector struggle. This is perfect feeding territory for Glencore, a highly acquisitive firm that has grown strongly by being prepared to pay for second-tier and third-tier mining assets when owners’ finances are stretched and other buyers are scared away, and then building them into first-tier producers.
Glasenberg emphasized this positive outcome from the IPO in late August at the company’s half-year results. "We have a robust balance sheet, with available committed facilities of $10.4 billion, while our gearing is down at 22 from 44 and our investment-grade ratings have been strengthened." He noted that while the fear surrounding sovereign debt has prompted investors to take cash out of the equity market and put it in safe havens, commodity prices have not fallen so sharply. "We still see strong demand in Asia while many producers are struggling to increase production." Glencore now has the financial resources to realize existing capital expenditure projects to increase its own production. It aims to do more besides, already having announced a string of small acquisitions since the IPO closed.
Glasenberg hopes the company’s stock can yet command a growth premium. He said: "We continue to push to exceed GDP growth on the volume side of the business by increasing market share."
Analysts of the company note that rather than being a pure play on rising commodity prices or even on volumes, Glencore is a company whose marketing business does well in conditions that are slightly harder to identify but are discernible today. This can be seen in the tightness of markets between consumers in emerging markets still showing strong demand and producers struggling to expand supply. This is when it can increase its margin per unit of volume.
But investors are in no mood to take any of this on trust, because for those who bought shares at 530p the IPO has been anything but a success. "It’s a deal that hangs over the market," one source says. "And Glencore needs to work on its relationships with these investors if it wants to come back to them in future for bigger deals." The company has been doing exactly that. But to investors it must sound rather lame for the company and its ardent backers to plead that while its shares have sunk so have everyone else’s.
The portfolio manager at a large UK long-only fund manager says: "Part of the problem for Glencore is that, having traded flat on the first day and fallen since, it never had any period of consolidating at above issue price that might have built some support. Instead it was a prime candidate for investors to sell." He adds: "It was doubly unfortunate that it then appeared to miss consensus earnings estimates on its first results announcement just weeks after listing. This company has now set the bar high for itself. Management now need to hit their numbers consistently, prove these are predictable and the businesses resilient in tough economic conditions, and it had better not make any mistakes on acquisitions."
