Exclusive: Glencore worth up to $69 billion: underwriters

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The company's logo is seen in front of the headquarters of Swiss commodities trader Glencore in Baar near Zurich April 13, 2011. REUTERS/Arnd Wiegmann

By Quentin Webb

LONDON | Sun Apr 17, 2011 8:50am EDT

(Reuters) - Glencore is already worth as much as $69 billion, with its earnings set to double in two years, according to research from two banks underwriting the commodity trader's potentially record-breaking listing.

Glencore's banks are distributing research to potential investors to help convince them to back the previously insular trader as it seeks to raise as much as $12.1 billion.

Research from Barclays Capital and Credit Suisse -- not distributed to the media but seen by Reuters -- also forecasts rapid growth in key measures of profitability, such as earnings before interest, tax, depreciation and amortization (EBITDA).

Barclays says Glencore's equity is now worth $52.5 billion to $69.2 billion, while Credit Suisse values the Swiss firm, led by former coal trader Ivan Glasenberg, at $53 billion to $68.6 billion.

Pre-flotation research typically excludes funds raised by selling new shares, in this case up to $8.8 billion.

If that is the situation here, it would mean the banks think that Glencore could ultimately be worth as much as $78 billion after a listing -- even more than the top of the $45-$73 billion range implied by Glencore's own figures.

The banks declined to comment.

Valuation is a challenge for a complex business that is part trader, part miner, and part investor -- a 34.5-percent stake in Xstrata Plc is Glencore's biggest listed holding.

Glencore is aiming to sell a 15 to 20 percent stake worth $9 to $11 billion, including $2.2 billion of existing shares and the option to sell an extra 10 percent.

Barclays says earnings will hit $8.86 billion in 2012 -- or more than double last year, when net profit was $3.8 billion.

Glencore's EBITDA will also far surpass 2007's record $7.7 billion by 2012, the duo forecast.

In the next two years, Barclays says it will more than double to hit $12.9 billion, while Credit Suisse predicts it will touch $11.76 billion. The rise far outstrips analysts' average forecast of a 48-percent rise at Xstrata.

LIMITED INFLUENCE?

The banks use a range of measures to value Glencore, including "sum of the parts" valuations and price-to-earnings and enterprise value to EBITDA ratios.

On an EV/EBITDA basis, Glencore should fetch a premium to European miners, because of a lower tax base and less volatile earnings thanks to its marketing business, Barclays says.
It says a long-mooted merger with Xstrata would make "a very attractive company" but the financing of such a deal "remains unclear" and would require significant debt or equity funding.

Credit Suisse's estimates earnings before interest and tax will more than treble in two years at the mines and smelters Glencore controls. However it warns the firm "does not have a proven track record in delivering significant, capex intensive project growth."

New investors will control less than a quarter of the company, the Swiss bank notes, and "their ability to influence significant/company transforming transactions may be limited."

The banks are among nine working on the IPO. Credit Suisse is one of the top three, known as joint global co-ordinators, while BarCap is a co-bookrunner.

(Reporting by Quentin Webb; editing by Sitaraman Shankar)