By Clara Denina and Melanie Burton
LONDON/MELBOURNE, Aug 5 (Reuters) - Glencore's planned secondary listing in Australia signals a push to tap one of the world's fastest-growing pools of institutional capital to fund its copper growth ambitions and potentially pave the way for transformational M&A.
Australian pension funds have ample capital and a strong appetite for resources stocks. The country's pension assets total A$4.4 trillion ($3.1 trillion) and are projected to nearly triple to A$12.4 trillion by
2045, according to a Deloitte report in June.
Glencore CEO Gary Nagle said on Wednesday he believes the company can achieve inclusion in Australia's benchmark ASX 200 index within 12 months, requiring about A$1.5 billion of market capitalisation, before ultimately qualifying for the larger ASX 100 index, which requires roughly A$5.5 billion of shares trading on the Australian market.
Nagle said investors had shown strong interest in an Australian listing, particularly after Glencore's failed merger talks with Rio Tinto earlier this year.
"There have been requests from many investors to meet with us after some of the discussions that had happened about Rio," he told reporters, adding a visit to Australia in March and April generated strong interest from large pension funds.
Australia's biggest pension fund, AustralianSuper, said in May that a Glencore ASX listing would be "positive" for both the exchange and the company.
Solaris Investment Management Chief Investment Officer Michael Bell told Reuters: "If Glencore want to list down here we would take a look, we welcome additional companies on the ASX."
Australian fund managers are awaiting further details, with calls to management scheduled in the coming days. Some, however, suggest Glencore may not find success as quickly as Nagle expects.
"Without a liquidity event (new shares, a sale of existing shares, or M&A) it will be hard," said one, speaking on condition of anonymity. "No franking, four fatalities and thermal coal. Just relying on superfunds to buy may not work."
Franking credits are tax credits attached to dividends to reflect Australian company tax already paid. They are popular with Australian investors, particularly retirees and pension funds, because they can reduce tax bills and even generate cash refunds.
Glencore acknowledged four work-related fatalities from two incidents so far this year. Rio Tinto recorded two and BHP one.
Nagle said existing Australian shareholders faced limits on how much they could invest overseas, and a local listing could help unlock access to more capital.
MERGERS AND ACQUISITIONS
The move comes as a six-month standstill on merger discussions with Rio Tinto expires.
"This listing could also make it easier for Glencore to pursue large M&A with Australian-listed companies," Jefferies analysts said in a note.
While Nagle insists the focus is on organic copper growth, an ASX presence could smooth the path for future Australian deals by increasing Glencore's visibility among local investors and aligning its shareholder base more closely with Rio's.
Glencore is "looking at an Australian listing to access mining-friendly investors, or perhaps at least make their name more well known if Rio Tinto and Glencore decide to have a go again at merging," RBC Capital Markets analysts said.
Nagle said a secondary listing in Australia would make no difference to any potential merger with Rio.
For the ASX, landing an $87 billion global miner and commodities trader would be a significant coup, adding a big name to a resources sector that has lost some players through consolidation.
The ASX said it was "delighted" Glencore had chosen to list in Australia.
FILLING THE COPPER GAP
Australian investors have seen domestic copper investment opportunities shrink after years of industry dealmaking.
Glencore plans to increase copper production to about 1.6 million metric tons by 2035 from 810,000 to 870,000 tons expected this year, requiring substantial capital investment.
The company's net capital expenditure was $4 billion in the first half alone, including investments across its copper portfolio to secure land access, growth opportunities and operational flexibility.
Nagle said the listing would strengthen Glencore's profile in "one of our most important operating jurisdictions," broaden its shareholder base and improve trading liquidity.
Glencore's Australian operations include copper, zinc and nickel operations, although thermal coal remains its biggest business in the country. Australia is the world's second-largest exporter of thermal coal and Glencore its largest producer.
Last year, the company secured A$600 million of government support over three years to keep its copper smelter and refinery open.
Australia also offers what Nagle called "a highly sophisticated investor base with deep expertise in the global resources sector," and investors who understand the commodity-cycle volatility that saw Glencore's first-half earnings surge.
The listing would cost Glencore relatively little because it would be carried out through CDIs (CHESS Depositary Interests) and involve no capital raising, while potentially opening the door to trillions of dollars of mining-savvy institutional capital.
($1 = 1.4198 Australian dollars)
(Reporting by Clara Denina, Melanie Burton and Tom Daly. Editing by Veronica Brown and Mark Potter)
