Forget the millionaire’s factory of Macquarie Group – step inside the world’s newest billionaire factory.
Commodities trading giant Glencore is about to become one of the world’s biggest corporate creators of wealth when it lists on the London sharemarket later in May, with four of Glencore’s management team set to become billionaires.
But while Glencore’s home base might be far away in Switzerland, the float is also likely to reshape the Australian rich list in the process.
Glencore’s South African-born, Swiss-based chief executive Ivan Glasenberg could emerge from the IPO with a stake worth as much as $10 billion, if Glencore manages to achieve its forecast valuation of $60 billion.
And courtesy of a two-year stint in Sydney during the 1980s, Glasenberg is actually an Australian citizen and is therefore eligible for BRW’s Rich 200 list.
This means Glasenberg could very well challenge Gina Rinehart (who was valued at $9 billion on the Forbes‘ billionaire list earlier this year) for the title of Australia’s richest person – and make the most stunning debut in rich list history.
Glencore will contribute another Australian to the rich list. Glasenberg’s right-hand man, chief financial officer Steven Kalmin, is likely to emerge from the float with a stake worth around $610 million. Like his boss, Kalmin is based in Switzerland.
The Glencore float has grabbed headlines around the world because of its size, the juicy details that have been revealed about the company’s reach and the veil of secrecy it has existed under until now.
The company was founded in 1974 by infamous commodities trader Marc Rich, who would become best known for being indicted in the US in 1883 for evading $US48 million in taxes, committing tax fraud and selling oil to Iran during the 1979-81 hostage crisis. He fled to Switzerland protesting his innocence and was controversially pardoned by US President Bill Clinton on his very last day in office in 2001.
That was a good seven years after Rich had been ousted from Glencore, with former metal trader Willy Strothott and management taking control of the company. They set about creating one of the world’s biggest private businesses and the world’s biggest commodity trading house.
While the company owns physical operations around the world – mines, processing, smelting and refining operations, transport assets and stakes resources companies such as Xstrata – it is the recently-released details about its commodity trading reach that have astounded many.
The company says it controls 60% of the zinc market, 50% of the copper market, 45% of the lead market, 33% of the thermal coal market, a third of the traded aluminum market, 9% of the grant market and 3% of the oil market.
Outside of financial circles, few realised just how much power Glencore exerts over some of the world’s most important commodity markets. And the whole point of the float is to allow the company to flex its muscles in an even bigger way, as Ivan Glasenberg told the Financial Times recently.
“We will get firepower and we can buy assets when opportunities present themselves in areas and sizes that we could not do before.”
Of course, this firepower brings with its certain risks, as the 1,600-page prospectus makes clear.
For example, Glencore revealed a Dutch subsidiary was involved in a criminal probe in Belgium over “violation of professional secrecy, corruption of an international civil servant and criminal conspiracy”.
The prospectus also raises the risk of fraud and corruption.
“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.
Whatever you think of Glencore’s growing reach, great power has brought with it great wealth.
Glencore has over 2,700 employees, stationed in 50 offices across 40 countries. Revenue last financial year was $US185 billion, while earnings before interest and tax were $5.3 billion.
At the core of the business are 485 employee shareholders who will all emerge from the IPO with millions of dollars.
Within this group, there are reportedly 65 elite commodity traders who stand to grab $500 million each from the float.
And within this group, there are 12 top executives who control 31% of the company, worth around $19 billion if the float goes as planned.
Which brings us back to Ivan Glasenberg, who will be the company’s largest shareholder after the float, with a stake of 15.8%.
He is an intriguing character. According to an interview he gave to a magazine produced by the University of Southern California’s Marshall business school, he became interested in commodities trading while studying accountancy in South Africa.
“I observed a man sourcing candle wax from South America and selling it to Japan. I thought, ‘That’s unbelievable. Talking on the phone in his office, that man made money moving candle wax from one country to another.’ It really interested me.”
He joined Glencore as a commodities trader in 1983, just around the time he narrowly missed going to the 1984 Olympic Games as a speed walker.
He worked in Sydney, Hong Kong and Beijing as he climbed the Glencore ladder, taking the job as chief executive in 2002 – a few years before the resources super cycle really gathered pace.
The float of Glencore has sparked a number of profiles of Glasenberg and the corporate culture he has created.
The culture has variously been described as close-knit, hard working and hard-hitting by more favourable reports, and ruthless, robotic and cult-like in more negative ones.
Glasenberg is variously described as having a fiery temper and promoting an over-bearing management style, and being charming and being able to talk with anyone.
In most cases, the sources of these observations are not revealed, but the consensus picture that builds up is of a chief executive and management team dedicated to working long hours and travelling around the world to meet trading partners, politicians, mine managers and anyone else who could provide them with the information needed to help them make as much money as possible.
“We are going to try to make maximum money for ourselves and investors could coat tail with us,” Glasenberg told the FT in April.
It’s a brutally frank assessment, but it’s probably exactly what potential investors want to hear.
Australia has had its share of millionaire factories in the past – most notably Worley Parsons and Flight Centre – but the sheer wealth created within Glencore is stunning.
Some will question how long the company’s growth can continue, but expect Ivan Glasenberg and Steven Kalmin to be fixtures on our rich lists for years to come.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
