Columbian coal mine Calenturitas is owned by Glencore.
Columbian coal mine Calenturitas is owned by Glencore.

Right time for Aabar's move



Commodities have never been hotter, making for the perfect climate to list US$11 billion (Dh40.4bn) of shares in the world's biggest commodities trader.

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Last Updated: May 05, 2011

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Market commentators say an initial public offering (IPO) by Glencore, which values the Swiss commodities trading giant at about $61bn, will encourage a number of major mergers and acquisitions in a sector already benefiting from soaring prices.

The first of these deals could involve Xstrata, a global mining group that has sent strong signals it wants eventually to merge with Glencore.

"This is definitely not a deal to be missed," said Bode Wilfred, the head of the corporate and capital markets group at the Dubai law firm Galadari & Associates.

"Aabar is about to feed the beast to go on to do larger deals," he said.

Aabar, a unit of Abu Dhabi's International Petroleum Investment Company, will become the biggest investor in the flotation by the trading house. It confirmed it would invest up to $1bn.

Mr Wilfred said Aabar was motivated by the strength of commodity prices. They were "only going in one direction in the long term - up", he said. Crude oil has been trading at two-and-a-half-year highs, while gold, silver and raw materials have hit highs in the past few months.

When Glencore announced the world's biggest public listing this year, it also revealed its dominance over the commodities market and its greater ambitions, announcing its intention of buying a Kazakh mining group in a $3.2bn deal.

Glencore's appetite for risk in commodities trading exceeds that of Goldman Sachs, Morgan Stanley, Barclays Capital and JPMorgan, analysts say.

The trading house said last year it controlled 60 per cent of the third-party market for zinc, half the market for zinc concentrates and copper, 45 per cent for lead and 38 per cent for alumina.

Glencore is also expected to become only the third company - and the first in 25 years - to enter the FTSE 100 index on its first day of trading.

For Aabar, investing in Glencore offers an opportunity to tap into the booming global commodities market. Other commodities trading experts said that from a macro perspective, Abu Dhabi's taking a stake in Glencore was a move to bolster the emirate's food security.

Caroline Bain, the senior commodities specialist at Economist Intelligence Unit in London, called Aabar's investment a "wise decision", given the UAE's reliance on imported food.

"I see it as more part of wider efforts to boost food security," she said. "It seems a wise investment to get a foothold in the wider commodity trade and have some control over food and the price it is trading at."