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Congratulations if, in the spring of 2011, you took one look at the big £38bn stock flotation of the year and concluded the company was un-investable. Glencore has never traded above its float price of 530p. The Swiss-based mining and trading company stands at 217p after Thursday’s 9% fall, which was prompted by news of an investigation by the Serious Fraud Office into suspicions of bribery.
Broker Jefferies politely called the SFO’s probe “a new overhang on Glencore shares”. The existing overhangs are inquiries by the US Department for Justice and the US Commodity Futures Trading Commission into activities in the Democratic Republic of the Congo, Venezuela and Nigeria. That’s quite a collection of serious regulatory bodies taking a look.
One cannot speculate on the outcomes on these investigations but the sense that Glencore is unknowable for outside investors has become entrenched. Chief executive, Ivan Glasenberg, the billionaire chief executive and owner of 9% of the shares, has been whistling a “de-risking” tune for years but he mostly means the balance sheet. Glencore is still very big in “high-risk” countries and goes where other miners fear to dig.
Glasenberg, 62, spoke this week about the possibility of retiring next year. Bring it on, many of his weary shareholders would say. More than eight years after joining the FTSE 100 index, Glencore’s shares are among the lowest rated of all the major miners’ and the legal and regulatory headaches are greater than ever. Life without Glasenberg surely wouldn’t be worse.
M&G’s reliance on retail was a costly mistake
It’s always tempting to bash financial regulators when retail investors are deprived of the opportunity to access their savings. And often it’s the right response, at least in part. The Financial Conduct Authority was asleep, or too in awe of EU rules, when Neil Woodford was messing about with meaningless Guernsey listings for some of the unquoted rubbish in his Equity Income portfolio.
But the suspension of M&G’s £2.5bn Property Portfolio fund is different. The problem here is the structure of the product. A daily dealing facility for an open-ended fund that invests in property, an illiquid asset, is bound to cause difficulties sooner or later. If too many investors want to exit at the same time, the fund can’t flog the underlying assets fast enough to meet redemptions. Or, if it sanctions a fire sale of properties, the losers are those investors who wish to stay put.
Funds try to address this mismatch by maintaining large cash balances. The M&G fund was aiming for 10% and others go higher. But that creates a separate problem. If you’re investing in property for income, why would you want any portion allocated to low-yielding cash?
One regulatory solution would be to ban open-ended property funds altogether for retail investors but that would be ridiculous. The design of the product may be deeply flawed but investors have to make their own choices. The job of the regulator is to ensure those choices are informed by facts and, on that score, the FCA’s planned remedies look roughly right.
The risk of suspensions will have to be highlighted more prominently and suspensions will happen if 20% of the assets can’t be valued accurately. The chief grumble is only that the FCA has taken so long to act: the last round of suspensions in the property fund world happened in 2016, after the EU referendum.
In the meantime, aggrieved investors in the M&G fund should address their complaints to M&G itself: the fund looks to have been far too exposed to retail properties, where values have been sliding for years.
Aramco’s true worth has yet to reveal itself
They’ll call it a triumph in Riyadh. Aramco has sold $25.6bn worth of shares and the world’s biggest oil company has been valued at a top of the range $1.7tn in the initial public offering (IPO).
Context is everything, though. Plan A was to shoot for $2tn and sell 5% of the shares, rather than than 1.5% that have been dispatched. Once upon a time, Aramco was going to be listed on a foreign stock exchange, not just the local Tadawul market.
Nor is it yet clear how heavily the Saudis had to lean on patriotic local investors to drum up demand. Very heavily, one suspects: the western investment bankers on the job have been twiddling their thumbs for weeks.
So judge Aramco’s real worth only when outside investors own a meaningful slug of the equity. The real IPO hasn’t happened yet.
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