Cigar-chomping billionaire Marc Rich may have been the best commodity trader in history with his forays in oil and aluminium but, these days, he is known more for the controversial pardon he extracted from then-US President Bill Clinton and the US$365 million (RM1.23 billion) divorce settlement with his ex-wife Denise. Rich made billions busting sanctions in South Africa and Iran, supplying them raw materials and taking their oil, minerals and metals and flooding them in the world markets. He was indicted in the US for his illegal deals with Iran as well as tax evasion, but dodged extradition for decades after he took Spanish and Israeli passports while retaining his Swiss residency.

His flagship, Marc Rich & Co, since renamed Glencore International and bought out by its managers, is today the world’s largest commodities supply chain manager. Sort of like Noble Group and Olam International combined, but 40 to 50 times the size. Noble’s chairman Richard Elman, who once worked for Philip Brothers or Phibro alongside Rich, calls Glencore a “goliath” and considers himself something of a latter-day David. Olam’s CEO Sunny Verghese draws his own inspiration from another commodities titan, Cargill.

Glencore is more in the mould of Noble, a manager of hard raw materials like metals, only far bigger, though both do soft commodities as well. Olam is more from a Cargill-like template, though it is just a little shadow of the US giant.

While Noble and Olam are both listed, Glencore and Cargill are private. Until recently, very little was known about their financials, although both have recently begun beefing up corporate information on their respective websites.

A year after the global credit crunch that squeezed them, their suppliers and buyers, Glencore and Cargill are now reportedly rethinking their corporate strategies. Moreover, after the last commodities-price bull run, Glencore and Cargill, like Noble and Olam, have realised that they need a far bigger capital base to maintain and grow their scale. Just last month, Glencore sold as much as S$2.2 billion (RM5.3 billion) worth of convertible bonds to investors including Singapore’s GIC, institutions like BlackRock Inc and China’s Zijin Mining Group Co in what may be the first step toward an IPO. The bonds, which are due December 2014, are convertible into Glencore shares upon an IPO or “other pre-determined qualifying events”.

Glencore owns a 35% stake in Swiss mining giant Xstrata plc, which mines copper and coal. Glencore also owns zinc mines in Peru and Kazakhstan, coal mines in South Africa and a copper smelter in the Philippines. It is one of the top-three global players in core commodities. Its management has, in recent months, articulated a strategy to bondholders that sounds like Glencore wants to be the next BHP, Rio Tinto or Vale, and then some. It not only wants to be a huge mining giant, it also wants to control as much of the commodities-supply chain as possible. Glencore has been in the news recently, because Moscow-based United Co Rusal, the world’s biggest aluminium firm in which it has 9.7% stake, is now seeking a listing in Hong Kong. The buzz in the commodities sector is that Glencore will eventually privatise Xstrata, and then seek a listing, most probably in Hong Kong or London, or both.

The listing will be huge. Glencore made a net profit of US$6.4 billion on sales of US$142 billion in 2007 and US$1.06 billion on sales of over US$152 billion in 2008. Though 2009 figures have not yet been made public, annual sales are now in the region of US$200 billion. With the value of its assets, such as stakes in mining associates, rising, Glencore could be worth US$60 billion to $70 billion in an IPO, according to some analysts. If the company lists 25% of its shares, the IPO could easily be worth US$15 billion to US$18 billion. If commodity prices surge between now and the time of the listing, the IPO could be as big as Chinese banking giant ICBC’s listing four years ago, which raised over US$20 billion.

In commodities, it is now all about China, by far the biggest consumer of raw materials, from precious and industrial metals to soft agricultural commodities. Little wonder, then, that Rusal picked Hong Kong to list in. Hong Kong is now wooing the likes of Glencore and Cargill. Several other international mining and commodities firms have also wondered aloud about secondary listings in Hong Kong.

Hong Kong’s gain may not quite be Singapore’s pain but, having wooed commodity suppliers and supply chain firms like Noble and Olam for years and touted itself as a hub of sorts for trading and shipping firms, the Singapore Exchange is now seeing Hong Kong pull the rug from underneath it with more blockbuster Chinese and global mining IPOs, as raw material firms head straight to Hong Kong.

The SGX needs to woo big players like Glencore, Rusal and others, including Chinese and Mongolian mining firms that see Hong Kong as their natural home, more aggressively. Moreover, it needs to keep firms that are seeking dual listings from fleeing.

Just last week, China wastewater-treatment firm Epure International announced it was seeking a secondary listing in Hong Kong. That is often been a first step to eventual de-listing, as Want Want and Singamas Container showed in recent years, although TPV Technology is still listed in both Hong Kong and Singapore. Analysts are already churning out reports that are fuelling rumours that companies like Midas, China Fishery Group, Pacific Andes, China Animal Healthcare and Yangzijiang Shipbuilding will be next to seek dual listings and eventually say “sayonara” to the SGX. To keep the smaller players in line, the SGX needs to be aggressive in netting bigger fish like Glencore.

While billionaire Rich, 75, who fled the Holocaust as a young boy and single-handedly invented the spot oil market, will not profit from the Glencore listing, whether it is in Hong Kong, London or on the SGX, because he long ago sold his Glencore shares, he is still betting on oil and raw materials and the rise and rise of China. Raw materials’ time to shine has finally come, he believes.  Glencore may no longer bear his name, but the world’s largest raw-materials supplier is destined to be the fugitive trader’s legacy.

Assif Shameen is consulting editor at The Edge Singapore




This article appeared on the Corporate page of The Edge Malaysia, Issue 788, Jan 11-17, 2010.