Secrets and controversy cannot stop the inexorable rise of Glencore

The initial public offering for the world’s largest commodities trader made billionaires of its secr

There are many ways to make a lot of money in the City, but the one that we all dreamed of, the one that kept us at our desks late into the night, was the possibility of being part of an initial public offering (IPO) - when a firm moves from private ownership to launch its shares on the public markets. This is where the proper money is made, the equivalent of many years' bonuses wrapped into one fat allocation of cash and shares. It was just a matter of being in the right place at the right time.

When Goldman Sachs listed in 1999, all 221 managing partners became multimillionaires. The private equity group Blackstone went public at the top of the bull market in June 2007; its co-founder Stephen Schwarzman earned a cool $684m. LinkedIn, the career networking site that launched its white-hot IPO on 19 May this year, made its portly chairman, Reid Hoffman, a billionaire. Stories circulated of even lowly staff receiving million-dollar cheques.

The latest company to IPO on London's markets is Swiss-based Glencore, a secretive commodities trading business - the world's largest. The firm was initially valued at over £36bn, immediately moving it into the FTSE 100, the first company in 25 years to debut on the blue-chip index. Its CEO, Ivan Glasenberg - a champion race walker - netted £5.7bn from the share listing. The deal made Bulat Utemuratov, Glencore's chief partner in Kazakhstan, the richest man in his native country. Daniel Maté, co-head of Glencore's zinc, copper and lead arm, was propelled into the top ten of Spain's rich list and Aristotelis Mistakidis, who runs the division with him, has become the second-richest man in Greece. The firm's traders received an average payout of over £55m each.

Bad timing

While LinkedIn's share price more than doubled on its first day of trading, prompting much doom-laden analyst chatter of dotcom madness and a new tech-bubble, Glencore's listing went off with a whimper, not a bang. Having traded down as far as 506p from the 530p issue price in the unofficial grey market, the stock closed at 525p after the first day of official trading, and remains below launch price at the time of writing. Although Glencore's employees still got rich, the market's response to the listing was muted.

Part of the problem was bad timing. Glen-core had benefited from the extraordinary spike in commodity prices over the past several years. As a result of these rocketing prices, the trader's volumes have risen significantly. But at the beginning of May, as investors began to trawl through the firm's 1,637-page prospectus for the public offering, commodities took a sudden tumble.

There were concerns about the state of the Chinese economy, a surge in US unemployment claims, a strengthening dollar, a bearish research note from Goldman Sachs. All led oil to drop almost 20 per cent in the first week of May. Even the once-untouchable gold price took a tumble, and remained depressed as it was revealed that George Soros - at one time a gold bull - had sold down the bulk of his holdings in the metal over the course of the first quarter. Glencore's valuation depends, to a large extent, on the reflected shine of the commodity bubble. If that bubble were to burst, its stock would necessarily suffer.

Short-sellers pounced on the firm as it pressed on with its IPO despite the volatile markets. The offering was three times oversubscribed, but the sluggish equity and commodity markets and a few determined hedge-fund shorters managed to keep the price depressed.

There is another problem for Glencore. The business was founded in 1974 by the aptly named Marc Rich, who in 1983 fled the US for Switzerland, having been indicted for evading more than $48m in taxes and violating a US trade embargo with Iran. Rich sold his company to management in 1993 and Bill Clinton pardoned him in 2001, but his dealings cast a shadow over the renamed Glencore. The firm has always been regarded as secretive and, despite the length of the prospectus, it continues to attract questions about how it makes its money. Panglossian analysts praise Glencore for its opacity - Andy Davidson of Numis Securities opined that "the moment we do know exactly how it works, then Glencore will lose its edge" - but many make parallels between Glencore and another commodity trader whose operations were shrouded in mystery: Enron.

Peak practice

Glencore is no stranger to controversy. In recent months it has been accused of involvement in a number of environmental and social abuses in poor and troubled countries around the world. But the company has denied these accusations, and while it may not be the first choice of ethical investors, Glencore isn't Enron.

The company's business is far more boring than its secretive behaviour justifies: most of its revenue comes from shipping commodities around the globe. Speculation remains a minor part of its profit portfolio. Its stakes in Xstrata, Rusal, Kazzinc and Century Aluminium give it a broad spread of mining assets, and the company is constantly carrying out smaller acquisitions, leveraging its position at the centre of the global commodity markets.

It is too soon to tell if Glencore's listing signals the peak of the commodity cycle, but Blackstone's IPO in 2007 is a salutary compa­rison. The company was listed at the very top of the market because Schwarzman and his team had equity prices hard-wired into their DNA. Although they my not have foreseen the severity of the 2008 crash, they knew when to get out. Glencore tells me that its executives are locked in to long-term contracts, and won't be selling their shares in the immediate future. If and when they do, we'll know for sure that the gold rush has ended.