Day One for JSE’s new #3 – CEO of R715bn Glencore returns to hometown in triumph
Glencore Xstrata is only starting to get used to life as a listed company. CEO Ivan Glasenberg, a South African by birth and upbringing, has not yet granted a broadcast interview. Not on television or radio. Colleagues tell me it will happen. Maybe. But not just yet. So with the central character in today's R713bn new listing not available for our CNBC Africa Power Lunch show, we asked Noah Greenhill to do the honours. Which he managed brilliantly. For years Greenhill worked tirelessly to achieve exactly what happened today. As the head of marketing at the JSE, he courted dozens of potential new listings. By the time exchange control regulations were adjusted and the penny dropped that the JSE offered foreign companies a unique opportunity, Greenhill had moved on. But he better than anyone knows about secondary listings on the JSE. And made the key point that once Glencore gets R38bn of south African investment, it kicks into the local indices. Which triggers a new wave of buying from index trackers like Satrix. All of which will doubtless help the stock's overall rating. As I wrote a little while back, although he eschews PR as a promotional tool, Glasenberg may well be returning home in triumph after all. UPDATE: After the initial article was published, Nerina Visser of Nedbank Capital tweeted me to say the JSE has has issued a statement on SENS to say that like any other new listing, Glencore needs to be traded for 20 days before being included in any index. So even if it managed today to get to the R38bn cut-off which Noah Greenhill refers to in the interview, it will still not be included in any JSE index until March at the earliest. – AH
ALEC HOGG: The shares of global diversified miner Glencore Xstrata listed on the JSE this morning. The company is now the third-highest market cap company on the Johannesburg Stock Exchange behind British American Tobacco and SABMiller. Noah Greenhill, Head of Corporate Finance at Safin Capital joins us, not just because of the Sasfin connection but also because of your JSE connection. Noah, over the years when you were at the JSE, you were working hard at bringing in new listings, so I guess you celebrated a little this morning, too.
NOAH GREENHILL: Absolutely. I think every listing on the JSE is an important listing, not only for the JSE, but also for South Africa.
ALEC HOGG: This is not just a listing. This is the third biggest at 700 billion and it was only decided on at the Mining Indaba at Cape Town (in February).
NOAH GREENHILL: That's right, and it is so important that companies like this, especially in the resources space, that they choose South Africa and the JSE to list because if they don't, it just makes it so much harder for South African investors to diversify their portfolios. It makes it so much more difficult to put a compelling value proposition for the JSE for smaller companies, to make the JSE – for want of a better term – the mining Mecca of Africa.
ALEC HOGG: So the mining story is what's getting you excited here.
NOAH GREENHILL: Absolutely – notwithstanding the fact that it's a great business, the fact that it's in a resources space is just as critical.
ALEC HOGG: What about Vale and Rio Tinto? I go back into this because part of the reason why (Glencore CEO) Ivan Glasenberg said that he listed here, was because exchange control requirements means that you may only invest a certain amount overseas. If you are listed on the JSE, they of course fall away.
NOAH GREENHILL: Correct. Previously it was so much more difficult for investors to invest in companies like Glencore, like Xstrata, like Vale etcetera. Being listed on the JSE, all of those restrictions fall away and now institutions, and from a retail perspective people like you and I, can now invest with no exchange control restrictions, in businesses like Glencore.
GUGULETHU MFUPHI: Are there any particular negatives attached to something like that, though, Noah?
NOAH GREENHILL: I don't think so. What could be the downside to a company like Glencore Xstrata listing on the JSE and giving access to South African investors – whether institutional or the public – an opportunity to invest in a company like that? A large proportion of their assets are in South Africa and Africa, so I can't see any downside.
ALEC HOGG: Maybe there is, but we'll explore that another time. How does it work on the indexes now? This is a huge company that's coming on. When does it fall into the index?
NOAH GREENHILL: The index of course, is important and that's a function of free float. There's a requirement on the JSE that the company that lists on the JSE has a minimum five percent free float, so around R38 billion worth of shares need to trade hands today.
ALEC HOGG: They're having a book build to do that.
NOAH GREENHILL: That will be determined this evening. If that is the case, you'll tick that requirement and in two days' time, the company will be included in all the appropriate indices that they need to be included in.
ALEC HOGG: You say R38 billion rand worth of stock in Glencore is going to have to be held by South African institutions, correct? What's the chance of that actually happening? It seems like a lot of money.
NOAH GREENHILL: It does seem like a lot of money. I don't know. We'll have to see what the uptake is today. I would imagine that there must be relative demand for a company like Glencore Xstrata on the JSE, for portfolios especially because there's such a dearth of large mining companies listed on the JSE. In order to diversify the large portfolios, I would imagine that the bigger institutions are looking for large volumes.
ALEC HOGG: So if we get the R38 billion, then it will go into the index, which means that your Satrix and your other index trackers also have to buy.
NOAH GREENHILL: Correct, the tracker funds have to start following, and because the tracker funds have to start following, a lot more volume goes into a stock like that. A lot more liquidity…liquidity brings demand because the retail investor says 'okay, well there's liquidity. I can get in and out. I'm prepared to put my 100 rand into that stock'. The story is therefore a virtuous cycle rather than the other way.
GUGULETHU MFUPHI: It seems like a benefit for all parties involved, as well as the small-time investors. What do you make of the rumours? I know that when we spoke off-air about this with Alec, he mentioned that it's just people trying to increase some market attention for other mining companies. However, there are rumours in the arena that Glencore Xstrata may want to take over other mining firms in the local market and Anglo has been identified as one.
NOAH GREENHILL: Absolutely, and I don't think that's a downside. The fact is, if they're not listed on the exchange in South Africa – on the JSE – then they can't issue shares because exchange control prohibits an unlisted company from owning shares in a foreign company. It therefore takes away that impediment from them acquiring assets in South Africa. And again, because they're so big and have such a big public profile, other companies start watching what they're doing and start understanding 'okay, if they can do that, we can do that on a smaller scale'. That's a good thing and that's what you want to promote.
ALEC HOGG: We just had on the screen moments ago, all the little dots for where Glencore is around the world, and it's a massive operation. However, the rumour – and Gugu's far too polite to spell it out – is that they're coming here specifically to buy Anglo American. What do you think of that?
NOAH GREENHILL: If they feel that it's a great opportunity and they're building a massive mining house… Well, from a South African and a JSE perspective, let's rather have that listed on the JSE, than not listed on the JSE and offshore, and again we're back to those exchange control restrictions and us trading in those assets. It's not good for anyone.
ALEC HOGG: We're also showing Ivan Glasenberg with Nicky Newton King and there's the blowing of the horn. You've done that a few times. Where did that come from – the blowing of the horn?
NOAH GREENHILL: A good couple of years ago there was a company – I can't remember what it was – that listed on the JSE. I had just started at the JSE and the people listed, they're walking around the foyer of the JSE, looking around, and saying 'gee, we've listed. Where's the acknowledgement of the fact that we listed?' I said 'no, this isn't right. We have to have something that celebrates the fact that the company has listed. This was pre-AltX and we started with the drum for AltX, and then we said 'hold on a second. It's great that we have this drum for AltX. We need something again that symbolises Africa, South Africa, entrepreneurs, growing business, and welcoming royalty'. Kudu horn was the thing that we came up with.
ALEC HOGG: Did you guys actually blow it properly, like a vuvuzela?
NOAH GREENHILL: It's a big challenge.
ALEC HOGG: Can you blow it?
NOAH GREENHILL: No.
GUGULETHU MFUPHI: Deep breaths.
NOAH GREENHILL: It's very difficult. In fact, we had to put a mouthpiece on it to make it slightly easier, because what you can't have is the Chief Executive officer taking a kudu horn and just blowing and there's nothing. It's just embarrassing and we don't want to embarrass CEOs.
ALEC HOGG: If they're good trumpet players, they'll probably get it right.
NOAH GREENHILL: How many CEO's can necessarily play a trumpet?
ALEC HOGG: How many CEO's can blow a vuvuzela? This whole story about the tenth new listing for this year in 2013: it does seem like all that hard work that you've been doing over many years is now catching fire. How many of those listings would you put down to the fact that the JSE has this advantage of exchange control?
NOAH GREENHILL: Listing, as you would understand it, is not a one-day game. The decision to list takes time. I think that all these things, like the removal of exchange control restrictions for investing in inward-listed companies, like the rules, and like the way the JSE treats dual-listed companies: all of that impacts on the process and the decision to list on the JSE. It's an 18-month to five-year cycle, in which those companies turn those decisions. Just as an aside: take a company who've announced their decision to list – Continental Coal. I've be courting Continental Coal for probably five or six years, talking to Don. He only decided this year to pull the trigger and list on the JSE. It takes time, and it's not necessarily the legislation that determines whether or not listing on the JSE is a good thing. It's a whole host of other factors.
ALEC HOGG: Well, good luck to Noah Greenhill and the hard work that he's done, and good luck to Ivan Glasenberg and his team at Glencore Xstrata because they literally only heard – or thought about – listing on the JSE in February this year. Clearly, that's an organisation that somehow manages to get things done a lot quicker than others do. Maybe that's a bull point.