Retention bonus

Glencore fees: Glencore’s 22 bookrunners did well in bringing the monster commodities trader to market — but probably not well enough to justify their client adding a potential $83 million turbo boost to their $170 million base fees.

Sure, it’s no mean feat selling $10 billion of stock in an initial public offering. Liaising daily with hundreds of investors is gruelling work. In Glencore's case, the syndicate, led by Morgan Stanley, Citi and Credit Suisse, had their work cut out. The company hadn’t even signed up a chairman when it filed its intention to float, which left the banks fielding tough questions about the trader’s corporate governance. Then again, dealing with the issuer’s quirks is arguably part of the standard 1.75 per cent fee.

To be outstanding, and merit a discretionary bonus, surely requires more. A gold-standard order book, for example. Glencore attracted high-quality investors as “cornerstones”, including the Abu Dhabi government, Fidelity and BlackRock. For that the underwriters would have been instrumental, and the achievement was impressive. But the rest of the order book doesn't shine so bright. Shares traded on the first day were equivalent to two-thirds of the freely tradable stock, hardly a mark of tremendous sticking power.

The banks also deserve some plaudits in bringing the shares to market in difficult times. Glencore's IPO clashed with an unexpected commodities correction that, at one stage, saw the oil price fall 10 per cent in a single day. That such dislocations didn't kill the IPO dead is also to the underwriters' credit. But these achievements are dulled by a too-full valuation. After pricing at 530 pence, the shares fell as low as 506 pence in conditional trading, and closed 2 per cent below the offer price on May 27. Over the same period, the Morgan Stanley World Metals & Mining index has edged up 0.5 per cent. New stocks are often volatile, but that is why the shares are traditionally offered at a discount of 5 to 15 per cent. Not, it seems, in this case.

The sweetener would be small change for a company this size, and Glencore has reasons to pay: its big M&A ambitions mean it requires loyal advisors. But judged purely on the IPO’s performance, offering extra goodies seems a bit too generous.