Glencore's share price could do with a fillip. The Swiss company's stock has fallen 25% since its heavily hyped flotation in May, as investors struggle with its unusual mix of mining and trading. Late next week, more of Glencore's shares will become tradable, offering hope of a technical bounce. For now, such hope looks overrated.
Glencore's free float is now a measly 11.7% of its share base. Company employees hold most of the rest, including CEO Ivan Glasenberg's 15.7% stake. But Glencore gained quick entry into the FTSE 100 on the promise its free float would expand to meet the 50% minimum required of foreign companies within a year of its May 24 listing. Next Thursday cornerstone investors in Glencore's IPO—including Abu Dhabi's sovereign-wealth fund, BlackRock and a Chinese mining company—become free to sell their stakes, totaling 5.2% of Glencore's shares.
For index purposes, Glencore's increased 16.9% float will be treated as a 20% free float. In turn, Glencore's weighting in FTSE and MSCI indexes will rise. Funds that track these benchmarks will have to buy more Glencore shares. Assuming FTSE and MSCI tracker funds now hold 10% and 5% of Glencore's free float, they could have to buy 83 million more shares, Credit Suisse estimates.
That will represent 7% of Glencore's increased free float, a significant chunk. Still, the impact will be phased: The FTSE's reweighting takes effect on December 16th, the MSCI's not until the end of February. Existing investors will have had plenty of time to position themselves ahead of the changes. And some cornerstone investors might decide to sell part of their holdings.
Besides Glencore's share price is unlikely to become detached from fundamentals for long. In May, employees are free to sell their 36% stake in the company, triggering another index reweighting. Whether this causes a stock squeeze or a share-price fall will depend on how many of Mr. Glasenberg's colleagues share his optimism about Glencore's future.
Source: http://online.wsj.com/article/SB10001424052970203611404577046141100287990.html?mod=WSJ_Heard_LEFTTopNews
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