Tuesday, April 24, 2012

Glencore: The Very Secretive Firm that Makes the World Work

The international commodities trading firm, Glencore, is the subject of a juicy investigative report by Foreign Policy. FP attempts to paint Glencore as a shady firm, but what Glencore really does is heroic. It finds commodities in the dark corners of the world and gets those commodities to market, damn sanctions, damn US regulations and damn EU regulations.

FP writes:
The firm was forced to pull back the curtain on its famously secretive doings to go public, and what it revealed shocked even seasoned commodities traders. Glencore, which Reuters once called "the biggest company you never heard of," turned out to be far more globally dominant than analysts had realized. According to its 1,637-page IPO prospectus, the company controlled more than half the international tradable market in zinc and copper and about a third of the world's seaborne coal; was one of the world's largest grain exporters, with about 9 percent of the global market; and handled 3 percent of daily global oil consumption for customers ranging from state-owned energy companies in Brazil and India to American multinationals like ExxonMobil and Chevron. All of which, the prospectus said, helped the firm post revenues of $186 billion in 2011 and employ some 55,000 people in at least 40 countries, generating an average return on equity of 38 percent, about three times higher than that of the gold-standard investment bank Goldman Sachs in 2010. Since then, the company has only gotten vaster in scale. It recently announced a $90 billion takeover of Xstrata, a global mining giant in which it already holds a 34 percent stake; if the deal goes through, Glencore will rule over an "empire stretching from the Sahara to South Africa," as the Africa Confidential newsletter put it. As it is, Glencore already trades, manufactures, refines, ships, or stores at least 90 commodities in some three dozen countries. "Glencore is at the center of the raw material world," said Peter Brandt, a longtime commodities trader. "Within this world there are giants, and Glencore is becoming a giant among giants."...

 Like all traders, Glencore makes its money at the margins, but Glencore, even more so than its competitors, profits by working in the globe's most marginal business regions and often, investigators have found, at the margins of what is legal.

This means operating in countries where many multinationals fear to tread; building walls made of shell corporations, complex partnerships, and offshore accounts to obscure transactions; and working with shady intermediaries who help the company gain access to resources and curry favor with the corrupt, resource-rich regimes that have made Glencore so fabulously wealthy. "We conduct whatever due diligence is appropriate in each situation to ensure we operate in line with Glencore Corporate Practice," said spokesman Simon Buerk, when asked how the firm chooses business partners and local representatives... the real secret to Glencore's success is operating in markets that scare off more risk-averse companies that fear running afoul of corporate governance laws in the United States and the European Union. In fact, those markets are precisely where the future of the company lies. Consider what Deutsche Bank identified as Glencore's "key drivers" of growth: copper in the Democratic Republic of the Congo, coal in Colombia, oil and natural gas in Equatorial Guinea, and gold in Kazakhstan. All are places with a heady, dangerous mix of extraordinary natural wealth and various degrees of instability, violence, and strongman leaders. Glencore's experience and adeptness operating in these "frontier regions" and "challenging political jurisdictions" -- Deutsche Bank's delicate euphemisms for countries known for corruption, autocracy, and human rights abuses -- is central, the investment firm wrote, to Glencore's "significant growth potential."

LEVERAGING TIES TO DICTATORS has always been at the heart of the business empire built by Rich, the Belgian-born U.S. citizen who founded what would become Glencore in Switzerland in 1974. "Focus your analysis on Marc Rich," the Geneva source advised me when I first mentioned I was researching Glencore. "He knew that you have to deal with governments and ministers, and you have to service those people. You can call it corruption, but it's part of the system." Undeniably brilliant, Rich started in 1954 as a mail clerk at Philipp Brothers, then the world's dominant commodities firm, and within two years had worked his way into the position of junior trader. His own politics were conservative, but money trumped ideology for Rich; he was just as willing to cut deals in fascist Spain -- where he worked for a time at the company's Madrid office, which specialized in handling business in rough countries in Africa and the Middle East -- as in communist Cuba, where Philipp Brothers had dispatched him soon after Fidel Castro took power. He went on to travel frequently to Havana, where, in addition to picking up a lifelong fondness for Cohiba cigars, he did business in pyrite, copper, and nickel.
I knew many of Rich's traders, when he operated out of the infamous 650 Fifth Ave building in NYC and before Rich fled to Switzerland, the stories they told me are stories that paint Rich is one shrewd operator. When a deal is difficult to get done, he considers all possible angles until he finds away to get it done. I have reported that while Rich was a fugitive, he even kept Henry Kissinger on his payroll. There's something of a confirmation to this report from Rich, himself.

The full FP story is here. 

1 comment:

  1. Isn't Glencore also an outfit with large backing from Nat Rothschild?
    Couldn't this sully their free enterprise reputation?