#Ghana’s #Agyapa #Gold Royalties Deal is Fraught with Risk and May Not Lead to the Rewards Expected

- Ghana government will allocate 75.6 percent of royalties from 16 areas under production or development

- The fund plans to then raise capital by selling 49% of these shares for an approximately USD 500 million on both the London and Ghana stock exchanges in an initial public offering (IPO).

- By offering as much as 49 percent in the IPO, the government also loses the potential benefit of selling additional shares later at a higher price while retaining majority ownership.

Risk and Reward in Ghana's Agyapa Gold Royalties Deal: Eight Points for Consideration

From the Natural Resource Governance Institute

1 October 2020

Key messages

• Under the plan, the government has created a royalty company and assigned a substantial portion of its future gold royalties to this company. It hopes to raise non-debt cash up front by floating almost half its shares in this company on the London and Ghana stock exchanges.
• Further consideration and public consultation might create the opportunity to strengthen the deal for the benefit of Ghana.

Glencore gets off to a Rocky Start

Glencore's IPO, 4X Oversubscribed, yet it couldn't even muster a 1 p gain on its first day of trading...

From the FT, link to full article below.

Glencore’s stock market debut left investors who had hoped for a big first day rally unimpressed, after the shares closed at the offer price of 530p. [...]

Following the issue of nearly $9bn worth of new shares, including an overallotment option, the enlarged company will have a market capitalisation of $62bn

The banks underwriting the initial public offering, led by Citigroup, Credit Suisse and Morgan Stanley, supported Glencore’s shares in the last five minutes of trading to prevent the price dropping below the 530p level.[...]

Glencore’s advisers had hoped that the shares could rally by 5 to 10 per cent on Thursday after the$11bn IPO was more than four times subscribed. [...]

“If you are genuinely four or five times oversubscribed, why is the share price flat?”

Bankers had hoped that a strong initial performance from Glencore would hearten investors and reinvigorate the sluggish market for European IPOs. [ So much for that...!]

 FT.com / Commodities - Glencore debut underwhelms investors



The MasterMetals Blog

Glencore lists fraud, criminal case among IPO risks - Yahoo! Finance

Glencore lists fraud, criminal case among IPO risks

On Wednesday May 4, 2011, 1:23 pm

By Clara Ferreira-Marques and Quentin Webb

LONDON (Reuters) - Commodity trader Glencore, set to list this month in one of London's largest-ever offerings, has detailed its involvement in a Belgian criminal probe as it outlines risks to investors, including fraud and corruption.

Glencore said in a prospectus on Wednesday, ahead of its planned $11 billion listing, that its subsidiary Glencore Grain Rotterdam, a former employee and a current employee had been charged in a criminal case in Belgium.

Glencore said the criminal investigation was probing a public official, the European Commission's Directorate General for Agriculture and others for "violation of professional secrecy, corruption of an international civil servant and criminal conspiracy."

Glencore's unit and its current and former employees have been charged with having committed corruption in exchange for information on European export subsidies, it added.

The case was initiated in 2003, with co-operation from Dutch and French police, and covers facts dating from 1999 to 2003.

Commission agriculture spokesman Roger Waite confirmed that the EU executive expected a trial into alleged corruption by former agriculture department official Karel Brus.

Brus, a Dutch national, is accused of having passed confidential information relating to EU export subsidy application decisions to a French farming lobbyist between 1999 and 2003.

"As far as the Commission is concerned, we cannot comment further on an ongoing investigation," Waite said.

Glencore declined to comment on the case beyond details included in the prospectus. It says it is not involved in legal proceedings which could have a material impact on its profits.

Belgium's federal prosecutor confirmed on Wednesday that there is a criminal case against Glencore but declined to comment further. The case will be heard in Brussels on May 12.

The Commission, the European Union's executive arm, has become a civil party to the case, Glencore said.

FRAUD RISK

Glencore also listed in its prospectus over 30 other risks to the broader company, its marketing and trading operations.

The formerly publicity-averse trader and miner operates around the world and says its willingness to move into riskier countries in Eastern Europe, Central Africa and South America before rivals gives it a "first-mover advantage."

Companies typically outline a vast number of risks to future performance in the run-up to a listing, in order to satisfy requirements to provide a full picture for future investors.

Glencore, however, detailed more than many, with risks including declines in demand for commodities, geopolitical risk and the risk it may not be able to retain key employees.

It also raised the risk of fraud and corruption, "both internally and externally."

"Glencore's marketing operations are large in scale, which may make fraudulent or accidental transactions difficult to detect. In addition, some of Glencore's industrial activities are located in countries where corruption is generally understood to exist," the company said.

Glencore said it has internal controls, external due diligence and compliance policies.

(Additional reporting by Ben Deighton and Charlie Dunmore in Brussels; Editing by Alexander Smith and Mike Nesbit)

Glencore lists fraud, criminal case among IPO risks - Yahoo! Finance

The MasterMetals Blog

Glencore has bigger risk appetite than Wall St banks

By Javier Blas in London

Published: May 2 2011 22:35 | Last updated: May 2 2011 22:35

Glencore’s appetite for risk in commodities trading is bigger than that of leading Wall Street banks, according to information released by the banks underwriting the trading house’s multibillion-dollar flotation.

The banks’ reports in advance of Glencore’s initial public offering shed new light on the financial activities of the world’s largest commodities traders. Glencore’s risk appetite will be an important factor for investors weighing this month’s offering in London and Hong Kong.

The research reveals that Glencore could have lost a daily $42.5m last year on average when measured by the so-called “value-at-risk” measure, much more than the average $25.7m put at risk each day in 2010 in commodities trading by Goldman Sachs, Morgan Stanley, Barclays Capital and JPMorgan.

The four banks are the largest commodities dealers by revenues in the financial sector.

Daily value-at-risk (VAR) is a common industry yardstick used to measure potential losses. The gauge has its critics, as it measures potential losses on regular trading days, but does not capture unusual trading situations such as during a war or in a crisis.

Glencore told the nine banks behind its IPO syndicate that it had a $100m limit on VAR, but added that it had not exceeded that limit since at least January 2008.

The trading house’s VAR fell to $26.4m in 2009 after peaking in 2008 at $50.1m.

The higher risk-taking by Glencore is partly explained by the physical nature of its business, which makes price hedging difficult.

For example, it trades a large amount of Russian oil, but hedging instruments such as Brent and West Texas Intermediate futures reflect the cost of crude in Europe and the US.

The physical nature of the trading implies that Glencore’s VAR starts from a base of about $25m-$30m, according to people familiar with the trading house.

But the higher figure also reflects the fact that Glencore does speculate in the market from time to time.

“Price exposures are normally hedged,” Ephrem Ravi, lead analyst on Morgan Stanley’s report, wrote in a note for investors.

He added: “Nevertheless, the company sometimes engages in deliberate price exposures to leverage on the insight it has into certain commodity markets.”

Olivia Ker, lead analyst for UBS, cautioned that, although Glencore had a limit of $100m for its daily VAR, the company had not explained how it responded when it sustained a loss.

“If it is in the habit of reducing risk after a loss, then we can be confident that risk is well controlled,” Ms Ker wrote. “But, if Glencore is in the habit of sticking with exposure after a loss to back the original trade, then the risks are that larger losses may accrue over a period of days.”

The Swiss-based company is aiming to sell a stake of 15-20 per cent, worth up to $12.1bn.

The company is set to issue its prospectus, providing detailed information about its activities, later this week.

FT.com / Commodities - Glencore has bigger risk appetite than Wall St banks

The MasterMetals Blog

More on the Glencore trading empire

April 14 2011 6:34 PM GMT
Glencore trading empire unveiled
--
By Javier Blas in London
--
Rivals fear growing financial muscle of group heading for london and HK listing and its influence on prices

Read the full article at: http://www.ft.com/cms/s/0/6d347810-66bf-11e0-8d88-00144feab49a.html?ftcamp=rss

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Glencore Versus Goldman - NYTimes.com

Glencore Versus Goldman

Short term yes, mid-long term, the commodity bull market still has some years ahead. If anything more like 1997, than 1999, when people were alredy calling the top in tech boom/bubble after doubling in 2 years, only to see the market triple form there again!!

April 14, 2011, 10:23 am

Glencore Versus Goldman

By DEALBOOK

AP Photo/Richard DrewHenry M. Paulson Jr., then chief executive of Goldman Sachs, on the bank’s first day of trading in 1999.

Glencore, which on Thursday formally announced its plans for an initial public offering, is drawing comparisons to Goldman Sachs.
But how similar are the global commodities trader and the global investment bank?
They’re both stalwarts in their respective industries. They’re both highly secretive about their businesses. And they’re both have corporate structures with influential partnerships at their cores.
The financial profiles aren’t all that different, either.
Glencore’s public offering could value the company at $60 billion. Recently trading at $160 a share, Goldman had a market capitalization of roughly $87 billion.
Glencore has the edge on revenue, notching $145 billion in 2010, an increase of 36 percent over the prior year. Goldman reported revenue of $39 billion in 2010, falling 13 percent from 2009. But Goldman is more profitable with net income of $8.3 billion, compared with $3.8 billion at Glencore.
Perhaps the most striking similarity is the timing of their respective initial public offerings. Glencore and Goldman both picked opportune moments to go public — that is when the market offered the best potential for peak pricing.
Goldman went public in May 1999. It was the middle of the dot-com boom when financial firms were generating enormous fees and profits from taking technology companies and other upstarts public.
The investment bank raised $3.7 billion from its I.P.O., then the second-largest debut ever after Conoco’s offering in 1998. Shares of Goldman jumped 33 percent on the first day of trading, to close at more than $70. The bubble burst a year later, and Goldman’s stock stumbled in the bear market that followed.
Glencore’s offering, which is expected to take place in May, comes when gold, metals and the like are booming. And it is a commodities bull market, as Goldman recently said, that may be nearing its end.

-Glencore Versus Goldman - NYTimes.com

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Glencore listing

Glencore says listing will boost firepower

By Javier Blas in Baar, Switzerland

Published: April 10 2011 22:09 | Last updated: April 10 2011 22:09

Ivan Glasenberg, chief executive, said it would make sense to combine with Xstrata

Ivan Glasenberg has broken a decade-long silence ahead of the launch of Glencore'sinitial public offering this week, saying that the flotation will give the world's top commodities trader the financial firepower it needs as consolidation gathers pace.

Mr Glasenberg told the Financial Times that the launch of the offering – the largest ever in London – was "imminent" after it received robust support from big institutional investors. Glencore plans to sell a 20 per cent stake worth about $10bn-$12bn, valuing the whole company at around $60bn, bankers said.

"The interest from the cornerstones was a lot stronger than we envisaged," Mr Glasenberg said. "Markets are in our favour too. We have a strong commodities market."Bankers close to the deal said the intention-to-float document will be filed on Thursday, although Mr Glasenberg declined to specify the day.

The company's chief executive mapped out a strategy of "opportunistic" acquisitions at a much larger scale than in the past and said it would make sense to combine with Xstrata, the London-based miner in which the trader owns a 34 per cent stake.

"We believe there is good value in the two companies being together," he said, but insisted that a deal was not on the table.

"Why has that not happened? It is a value debate. Xstrata . . . seems more comfortable for Glencore to go public and get a market price before they may or may not enter into discussions," he said.

Mr Glasenberg explained that having the flow of Xstrata's commodities production within the Glencore trading system was "advantageous" to both companies.

"There are a lot of benefits and synergies to put the two companies together," he said.

The flotation will move Glencore, run from a nondescript Swiss building, further from its origins under Marc Rich, the oil trader who was indicted for tax evasion in the US and pardoned by President Bill Clinton on his last day in the White House.

While insisting that Glencore would be disciplined and opportunistic, Mr Glasenberg said it could use its shares as currency to buy larger assets.

"We will get firepower and we can buy assets when opportunities present themselves in areas and sizes that we could not do before," he said, adding that Glencore could attempt purchases of $4bn-$5bn, up from $1bn-$2bn now. He said Louis Dreyfus, the family owned trader looking for a sale or IPO, would be a good complement for Glencore.

The trading house's IPO will be the third largest in history in Europe, only after the offerings of Deutsche Telekon and Enel of Italy in the late 1990, making it the deal of the year, bankers said.

The flotation will trigger massive gains for the 485 senior employees who own shares. But, in his first interview since becoming head of Glencore in 2002, Mr Glasenberg vehemently denied that the IPO marked the staff's cashing in at the top of the commodities cycle, saying that top employees will be locked in for up to five years. Mr Glasenberg said he was the largest shareholder, but declined to disclose his exact stake. He said he would not sell shares as long he worked in Glencore and added: "I have not intention to retire anytime soon."

He also insisted that being a public company would not alter Glencore's search for long-term returns. Over the past 10 years, it has delivered returns on equity of 38 per cent per year. "We will continue to be major shareholders of this company, and we are going to run this company to make maximum profits and maximum returns for our investors – including ourselves," he said.

"We are going to try to make maximum money for ourselves and investors could coat tail with us."

Glencore main advisors on the IPO are Morgan Stanley, Citigroup, Credit Suisse, Deloitte and Linklaters. BNP Paribas, Société Générale, Bank of America-Merill Lynch, Barclays Capital, UBS and Liberum Capital will also participate on the sale.

Copyright The Financial Times Limited 2011. 

http://www.ft.com/cms/s/0/d3f20718-639d-11e0-bd7f-00144feab49a.html#axzz1JDgVquOv

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