High commodities prices are affecting the market in all kinds of ways. The price of oil is pushing up the price of food and both are pushing down consumer spending. There’s a lot of money to be made in the sector right now Swiss commodities giant, Glencore International AG, is trying to get in on the action. Thursday, the company officially revealed its plan to launch an initial public offering in the order of as much as $11 billion. Glencore is active in the mining, energy and agricultural sectors and will pursue the IPO as a means of taking advantage of high commodity prices and securing cash ammunition for further acquisitions.
They will sell up to a 20% stake to investors with a primary listing in London and a secondary listing in Hong Kong. Glencore going public is notable both because of the company’s long history internal ownership and because it’s likely to enter the Blue Chip on its first day of trading. For those unfamiliar with the Baar Switzerland based company, it has been compared to the Goldman Sachs of global commodities. In its 30 year history it has gained considerable sway over commodities by producing and supplying raw materials across the globe. That influence will only become more important and lucrative in the changing global marketplace.
Prior to the financial crisis the market revolved primarily around technological advancements. Beginning after the global financial crisis, that began to change and the shift is only in its early stages. Raw materials have emerged at the center of a new breed of emerging economies. Countries like China and India will soon demand more food as middle classes emerge and expect to integrate more meat into their diet. The meat requires massive amount of grain to maintain and that will eventually drive up the cost of raw materials. The nations will also require more energy, further straining the limited fossil fuel supply and driving up costs of oil.
Therefore, competition for natural resources is expected to increasingly be a source of major wealth creation while shaping economic policies in the coming years.
Glencore is capitalizing on this with its IPO. The company plans to use its offering of $9 to $11 billion (including a primary offering of as much as $8.8 billion) to purchase more of the company JSC Kazzinc, a Kazakhstan-focused zinc and copper producer, as toward funding expenditures of the next three years.
There are a number of ways to investors can play the commodities market, and the IPO of Glencore--a company with one of the most comprehensive understandings of commodities and the changing marketplace as well as interests in a diversity of companies--could prove extremely fruitful as the transition to a more material based global economy hardens. Glencore is involved in the production, sourcing, marketing and distribution of commodities that include grains, copper, cotton, aluminum, sugar nickel and crude oil.
The deal is expected to be complete in May.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer