Glencore criticised for breaking pledge on share placing
Glencore’s actions in its $2.5bn equity placing this week fell “well short” of the standards expected by institutional investors, two leading trade bodies said on Thursday.
In a joint statement, the Investment Association and the National Association of Pensions Funds, whose members manage nearly £6tn of assets for their clients, accused Glencore of breaking a pledge to give existing shareholders the right of first refusal in any stock offering.
Glencore, which is reeling from the latest commodities slump, on Tuesday launched its $2.5bn share placing — rather than a rights issue — to help reduce its large debt load, and thereby preserve its investment grade credit rating.
Ivan Glasenberg, Glencore chief executive, and other senior managers paid $550m in the share placing to maintain their combined stake of 22 per cent in the group.
At its annual meeting in May, Glencore had promised to uphold best practice principles on pre-emption rights. In return, investors backed a resolution allowing the Swiss miner-cum-trader to issue new equity amounting to up to 9.9 per cent of its existing stock without the need for a shareholder vote.
Glencore decided not to uphold the pledge on pre-emption rights made at the annual meeting in the share placing, citing the need to complete the fundraising in a timely fashion.
“Glencore’s actions fell well short of the standards expected by institutional investors, agreed under the principles [on pre-emption rights] and embraced by the company as recently as May of this year,” said the Investment Association and the National Association of Pension Funds.
They also said: “Whilst shareholders generally recognise that the company needed to strengthen its balance sheet, the use of the authority [given by investors at the annual meeting] in this manner is a serious and unnecessary breach of the principles [on pre-emption rights].
“Most importantly, there is no evidence of any suitable consultation with existing shareholders. This sets a very damaging precedent for market practices.”
Bankers said Glencore wanted to move quickly with the share placing in order to address market concerns about the strength of its balance sheet.
Glencore has been the worst performer in the FTSE 100 index this year, falling as much as 60 per cent to a record low of 118.1p on Tuesday, shortly before the share placement was confirmed.
Since then the shares have rallied by as much as 15 per cent to 132.4p, but they have fallen almost 80 per cent since its 2011 listing — the biggest flotation in the history of the London Stock Exchange.
Glencore declined to comment on the statement by the two trade bodies.
People close to the company said it had consulted with shareholders for a week before the placing was launched and that it had prioritised existing shareholders and long-only equity funds when it came to allocating stock.
“There was a very open discussion with shareholders about the right structure for the offer,” said one of the people. “There was never a thought of cocking-a-snook at investors.”
However, Daniel Godfrey, chief executive of the Investment Association, said he had received a number of complaints from shareholders and questioned whether they had all received their full entitlement in the placing.
Citi and Morgan Stanley were joint bookrunners on the share placing. Barclays acted as co-bookrunner.
Key shareholders including Qatar Holding, the investment arm of the country’s sovereign wealth fund, and Harris Associates, the US investment firm, participated in the share placing.