Lock-ups hold key to Glencore winning FTSE prize

By Kylie MacLellan

LONDON (Reuters) – Swiss-based commodity trader Glencore has a good chance of securing a prized slot in London’s top share index if it pursues a mega-listing, without having to sell a massive chunk of shares or set up shop in Britain.

While firms wanting to list on London’s main market must have a free float of at least 25 percent, FTSE group rules go one step further for non-UK incorporated companies, requiring a free float of at least 50 percent to enter its UK indexes.

Any company which gets into the FTSE-100 is rewarded with a wider investor base, including numerous tracker funds.

Glencore (GLEN.UL: Quote, Profile, Research), a privately held partnership, should be able to achieve this by arguing the existing shares of its non-director level staff plus any new shares it issues will push its free float beyond the required level.

But if Glencore is to satisfy the group that compiles the index, those employees could not be subject to the same lengthy lock-ups that the firm’s directors are likely to face, since the rules allow a maximum lock-up of 12 months.

Glencore could restrict directors from selling stock for four years or more, sources close to the situation have said.

“The rules are the rules, and FTSE makes use of practitioner committees to help interpret those rules. There aren’t exceptions as such,” Chris Woods, Managing Director Governance and Policy, FTSE Group, told Reuters.

By keeping lock-ins short, Glencore, which some analysts have valued at $60 billion, could meet the FTSE free float requirements without any problem. Non-directors already own more than 50 percent of the world’s largest commodity trader.

And although incorporating in the UK is not out of the question, it is unlikely to be favored. Not only could there be negative tax implications, but it would also make the group subject to England’s more restrictive company laws.


While directors’ shares do not count toward free float under the FTSE rules, long lock-ups could also be placed on other staff to reassure potential investors that Glencore isn’t letting key traders get out at a top-of-the-cycle valuation.

But there are plenty of others whose holdings could count toward the free float, if the firm ties them in for less time. Such lock ups would be closely scrutinized.

“If they are not excluded for any reason other than the lock up, the Nationality Committee has the ability to look through lock ups which expire within one year of the first day of trading,” said Woods.

As of the end of 2009, Glencore’s 65 key managers — including the firm’s lead shareholder Chief Executive Ivan Glasenberg and its 11 other directors — held a total of 57.5 percent of the company’s share capital, according to the prospectus produced for the issue of its convertible bond.

Although a full breakdown of the partners’ holdings has not been made public, the shares are widely distributed, with shareholders equivalent to nearly one in five staff.

According to the bond prospectus, 485 people owned Glencore as of the end of 2009, while the firm employed 2,639 people outside the operating staff at its mines and smelters.

The shares held by the 53 non-director key managers and the rest of the partners would, along with new shares issued in the IPO, likely comfortably boost the free float above 50 percent.

The firm would however still need to consider the impact of selling any large stakes in the listing, with sovereign wealth funds such as Qatar flagged as possible “cornerstone investors.”

According to FTSE guidance, shareholders with stakes of more than 10 percent would likely be excluded from counting toward free float.

FTSE inclusion is important enough that the firm will be sure to have considered its options carefully as part of the process of deciding if to go ahead with a listing, and where.

“Especially for big companies at the moment there is a lot of focus on achieving FTSE indexation because a lot of funds have gone to either a tracker basis or a basis of allocation in which they have largely got to stick to the top categories,” said Philip Broke, a corporate partner at law firm White and Case. “As a result it has become more important.”

(Additional reporting by Julie Crust and Quentin Webb; Editing by Alexander Smith)