Commodity Trader Glencore on the Road to IPO (XSRAY, BLK)

The time is getting nearer for Swiss-based commodity trading house Glencore International AG to take its shot at entering the public markets. The company has been positioning itself for either an IPO or a merger with Xstrata PLC (OTC: XSRAY) for about a year now, and Glencore’s full-year 2010 earnings will certainly boosted its valuation well beyond the $35 billion estimate following Glencore’s private placement of $2.3 billion in convertible debt at the end of 2009. Blackrock Inc. (NYSE: BLK) was among the investors in those bonds.

For 2010, Glencore reported revenue rose by 36.3%, from $106.4 billion to $145 billion. Net income more than doubled, from $1.63 billion to $3.75 billion. The company achieved those numbers even though oil marketing was hit by excess supply at European refineries and lower demand in general.

The Wall Street Journal cites sources “familiar with the matter” saying that Glencore is “preparing” to list on both the London and Hong Kong exchanges, and the listing could happen during the second quarter of 2011. That’s consistent with our report on Glencore last November.

What’s different this time is Glencore’s potential valuation. The company’s 34.5% stake in Xstrata is easy to value. Glencore’s trading business is much harder to put a price on because so much of the business is kept hidden. A merger with Xstrata has always been a possibility if the value of Glencore’s trading business could be arrived at. So far, that big “if” still exists.

The WSJ says that Glencore may be valued at as much as $48 billion. According to the Financial Times, that’s not enough. The company seeks a valuation of “at least” $60 billion before its IPO. In November, $60 billion was the ceiling, but now it may be the floor. The value of its stake in Xstrata alone is probably worth more than $60 billion.

How much of the company would be offered in an IPO is also a question. Glencore has about $4 billion in cash and available credit, and about $15 billion in debt. An IPO of about 10% of shares would do nicely.

The valuation answer should not be long in coming. The WSJ reports that Glencore has started its roadshow in Europe this week for equity analysts and that similar meetings will follow shortly in Asia. An IPO or a merger with Xstrata could be announced as early as next month.

Paul Ausick