Glencore Breached Share Sale Principles, Investor Groups Say

  • Associations say there wasn't `suitable consulation' on sale
  • U.K. groups represent investors managing 6 trillion pounds

Glencore Plc’s $2.5 billion stock sale breached “shareholder protection principles” designed to safeguard the rights of existing investors, according to the U.K.’s Investment Association and the National Association of Pension Funds.

The Swiss commodity trader reneged on a commitment to guidelines that ensure existing shareholders have the right of first refusal in an equity sale, according to a joint statement from both groups, which represent U.K. investors managing more than 6 trillion pounds ($9.3 trillion). A spokesman for Glencore declined to comment.

“This sets a very damaging precedent for market practices,” the associations said in a joint statement on Thursday.

The world’s third-largest mining company sold stock on Wednesday as part of a wider $10 billion debt-reduction plan to protect its credit rating as commodity prices decline. Other than stating that 22 percent of the new stock was sold to senior managers and executives, Glencore didn’t disclose details of who bought the shares, which represented 9.9 percent of its existing capital.

“Whilst shareholders generally recognize that the company needed to strengthen its balance sheet, the use of the authority in this manner is a serious and unnecessary breach of the principles,” the statement said.

Stock Sale

Prior to the sale, Glencore said it would offer stakes to both new and existing investors.

At the company’s annual meeting in May, Glencore said it intended to adhere to the principles to protect shareholders from having their ownership diluted. On Tuesday, the company said the board had “reconsidered its intention and now considers that it is in the best interests” of the company “to execute the placing in a timely fashion.”

“Glencore’s conduct falls short of what we would expect of a major global company,” Oliver Parry, a corporate governance adviser at the business group Institute of Directors, said in a statement. “This whole episode sets a worrying precedent”.

Morgan Stanley and Citigroup Inc. handled the share sale for the company and Barclays Plc was also a book-runner.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is one of six independent non-executive directors at Glencore.

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