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Glencore International Final
Glencore International Final
Agenda
Were the decisions made by Glencore in line with its business strategy?
Was the timing of IPO correct? Was the decision of re-acquiring Prodeco a good move?
Introduction
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
Introduction
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
Industrial Activities
Source: Glencore Annual Report
Worldwide Operations
Introduction
Geographical Footprint
Introduction
Geographical Footprint
Introduction
Business Strategies
Increasing geographic scope and diversification of operations
Introduction
IPO Listing
10
Overview of IPO
Issuer: Glencore International Plc
thereafter
Souce: Bloomberg. Only include IPOs of amount larger than $10 million.
IPO Listing
12
Souce: Bloomberg
IPO Listing
13
2006
2007
2008
2009
2010
2011
Souce: Bloomberg. Only include IPOs of amount larger than $10 million.
IPO Listing
14
% Shares
53%
59%
62%
67%
IPO Listing
15
Internal Financing
Not enough to fund billion-dollar acquisitions
Debt financing
Possible credit rating downgrade
IPO
Right timing Decreases the financial leverage IPO Listing
16
Right Timing
US$ Million Total revenue Operating profit Net profit 2010 144,978 4,340 3,751 2009 106,364 1,967 1,633 2008 152,236 1,336 1,044
200 150 100 50 0 $200,000 $150,000 $100,000 $50,000 $-
2006 2007 2008 2009 2010 Total Revenue Commodity Price Index
Glencores financial performance is linked to the commodity market - With the commodities price rally in 2011, Glencore was at its best performance at the time of the IPO
IPO Listing
17
Right Timing
April 14 Announceme nt May 19 Global Offer
IPO Listing
Commodities have been on the rally since 2009 The value of Glencores assets is highly correlated with the commodity prices High commodities prices led to high analyst valuations
Overview | Rationale | Timing | Dual Listing | Analysis of IPO
18
IPO Performance
530 pence and HKD 66.53 per share
Oversubscription
Four to five times; orders well above $32 billion Reflects the economic situation Cornerstone investors (including Singapore GIC) were allocated 31% of the global offer
IPO Listing
20
Post Performance
14th June: 500pp 10% lower 24th May-24th August530pp - 347.95pp (35%lower)
IPO Listing
Overview | Rationale | Timing | Dual Listing | Analysis of IPO
21
Post Performance
14th June: 500pp 10% lower 24th May-24th August 530pp - 347.95pp (35%lower)
IPO Listing
22
Post Performance
IPO Listing
23
Capital Structure
24
Business Risk
GLENCORE
Diversified business
Metals and Minerals
Energy Products Agricultural Products Xstrata (34.5%) Katanga (74.4%) Kazzinc (50.7%) Mopani (73.1%) Prodeco (100%) Grains, oils, cotton, sugar, etc.
25
Business Risk
Strong exposure to the commodity market
200 180 160 $120,000 140 120 100 80 60 $40,000 40 20 0 $20,000 $$ 000,000 $160,000 $140,000
$100,000
$80,000 $60,000
2006
2008
2010
Capital Structure
26
Financial Risk
Increased Debt
$35,000 $30,132 180% 160% 140% $25,000 $20,405 $18,316 $16,755 $15,000 80% 60% $10,000 40% $5,000 20% 0% $23,589 120% $30,000
$20,000
100%
$-
2006
$ 000,000
2007
Total Borrowings
2008
2009
Debt/Equity Ratio
2010
Capital Structure
Source: Glencore company report Business Risk & Financial Risk | Capital Structure Analysis | Equity 27
Implication
Uncertainty in economy
Economy
Debt
Capital Structure
28
$3.6bn
Tax Shield
29
2010
0.38 1.54
2009
0.36 1.41
2008
0.30 1.19
2007
0.34 1.30
2006
0.36 1.53
Capital Structure
30
Capital Structure
31
Convertible Bonds
$2.142 billion convertible bonds were issued in 2009 5.5% (403,435,000 shares) of Glencores equity
Capital Structure
Source: Glencore report Business Risk & Financial Risk | Capital Structure Analysis | Equity
32
Convertible Bonds
Cornerstone investors
Tor Peterson
5%
4% 5% 6% 6%
Alexander Beard Telis Mistakidis Daniel Mate Badenes New shareholder (ex. Cornerstone investors) Ivan Glasenberg Other Glencore partners
47%
11%
16%
6% Daniel Mate Badenes 45% 11% New shareholder (ex. Cornerstone investors) Ivan Glasenberg 15%
Capital Structure
33
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
1995
2009
2010 present
Re-acquisition of Prodeco
36
Sale of Prodeco at $2.023bn to provide sufficient funds for participation in rights issue
Re-acquisition of Prodeco
37
3,529,764,00 0.00% 0 1,176,588,00 Without Participation 338,100,000 1,048,882,800 338,100,000 -66.67% 0 Total Outstanding 10,231,200,0 980,000,000 3,040,240,000 2,940,000,000 00 Shares 338,100,000 1,048,882,800 1,014,300,000 Re-acquisition of Prodeco
Overview | Timeline | Analysis of Selling | Analysis of Re-acquisition | Implications |
38
Sale of Prodeco
Call option granted to re-acquire within 12 months at a premium price
Re-acquisition of Prodeco
39
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
40
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)
Re-acquisition of Prodeco
42
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
43
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?
Re-acquisition of Prodeco
44
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
Re-acquisition of Prodeco
45
Challenges Ahead
46
Challenges Ahead
Fall in commodity prices is likely to negatively impact Glencores financial position
Possible excalation of the sovereign debt crisis Increasingly strict environmental regulations
Challenges Ahead
47
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
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
Conclusion
Conclusion | Future Outlook
50