Commodities Traders Brace for Transparency While Staying Private
Commodity traders expect the industry to become more transparent amid the rising need for financing and regulatory pressure, even as some merchants remain closely held, company executives said.
Physical commodity traders raised $19.9 billion in equity and debt last year, up from $10.6 billion in 2010 and $1 billion in 2002, according to First Reserve Corp., a private equity energy firm. Senior executives at Cargill Inc., the largest closely held U.S. company, and Trafigura Beheer BV, which buys and sells oil and other commodities, said trading companies’ characteristic secrecy will probably diminish over time as they tap capital markets to grow their businesses.
“The transparency of the private firms will have to necessarily increase,” Greg Page, chief executive officer of Cargill, said at the Financial Times Global Commodities Summit in Lausanne, Switzerland yesterday.
Switzerland rejected calls for tougher regulation of commodity traders last month, in favor of a voluntary industry code. The government will study the impact of introducing transparency requirements similar to those in the U.S. and the European Union before deciding how to proceed, Economy Minister Johann Schneider-Ammann said. The alpine nation started investigating the industry in May saying the country was “exposed to risks to its reputation” by being an oil, grain and coffee trading hub.
Vitol Group, Trafigura and Litasco are among privately-held trading companies that operate from offices in Switzerland. Commodity trading, concentrated in Geneva and Zug, boosted its share of the Swiss economy 10-fold over the past decade, according to Zurich’s KOF research institute.
“Commodities as a business have become more interesting,” Pierre Lorinet, chief financial officer of Trafigura, said in an interview in Lausanne. “There have been a few key transactions like the initial public offering of Glencore, and all of that is effectively making us more public.”
Trafigura’s financial statements will be made public as part of its $500 million subordinated perpetual bond, which was listed on the Singapore stock exchange last week, Lorinet said.
“The step of releasing information to key commercial partners or financial partners, to releasing it on a broader basis, is a fairly smooth transition,” Lorinet said. “It’s also a way for us to get access to additional capital.”
First Reserve’s President Alex Krueger said he thinks a financing trend is emerging. Physical commodity trading companies raised $22 billion in 2011, he said.
Glencore International Plc (GLEN), the largest publicly traded commodities supplier, expects to close a $30 billion takeover of Xstrata Plc by May 2. The move, which would create the world’s third-biggest producer of mined copper, comes less than two years after Glencore went through a $10 billion IPO that ended more than three decades of operating as a closely held company.
In contrast to Glencore, several traders said they would stay closely held.
“For the long-term, the interest of the firm is to remain private,” Ian Taylor, chief executive officer of Vitol Group, the world’s largest independent oil trader, told the conference. The company, which competes in the oil market with traders such as Trafigura and Glencore as well as international companies such as BP Plc, said its revenue increased 2 percent to $303 billion last year.
Marco Dunand, chief executive officer of Geneva-based Mercuria Energy Trading SA, didn’t expect more large commodity merchants to carry out IPOs.
“Certainly for us, it’s not going to happen,” Dunand said. “It makes sense to remain private because you can afford to have a much longer-term view.”
Mercuria has said it’s interested in selling a 10 percent to 20 percent stake in the company.
Other traders who want to expand and purchase capital- intensive assets may need to tap public markets, according to Alberto Weisser, chairman and chief executive officer of Bunge Ltd. (BG), the world’s second-largest publicly traded sugar processor which is listed on the New York Stock Exchange.
“The world will see more companies going public,” said Weisser, whose company had its IPO in 2001. “It’s necessary to be very large. Our experience of being public has been positive. You are under scrutiny, but it has benefits. I can only recommend it.”
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