Glencore Placing Attacked

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In a previous blog post I said that Glencore’s plans to cut its debt and strengthen its balance sheet by disposals and a new share issue were “just what the doctor ordered”. But it turns out that the detail of the prescription was not to everyone’s liking. Institutional fund managers have rightly deplored the fact that the equity issue was a “placing”, i.e. not a rights issue that is subject to the normal pre-emption rules. In other words, existing shareholders were not entitled to participate pro-rata to their existing holdings, if at all.

Pre-emption rights are the key to protecting one’s investment in a company from excessive dilution and is a fiercely guarded provision of the UK corporate environment for larger companies, although almost anything goes for smaller companies. An “Investor Forum” was created in the UK only recently to tackle issues of common interest to major shareholders and they are apparently taking up the case. It is alleged that Glencore broke an agreement the company made with shareholders at their AGM in May on this issue.

Glencore placed 1,307 million shares representing 10% of the share capital. The placing price was 125p which was only a small discount to the then prevailing market price, but the latter has since fallen to 97p at the time of writing so those who took up the shares might not be happy either.

To rub salt into the wound, the CEO, Ivan Glasenberg, and other senior managers participated in the placing at a cost of $550 million to maintain their interest. Why should insiders be able to participate when other shareholders cannot?

As with smaller company placings, urgency and simplicity were no doubt the justifications for taking this route rather than doing a full rights issue. But it sets a very bad precedent and the Investor Forum are surely quite right to take up the matter. It will also raise further questions about the leadership of Glencore. Let us hope that the Investor Forum shows that it has some teeth and can have an influence on companies.

Roger Lawson

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