Commodities trader Glencore International AG's announcement on Thursday that it is laying the groundwork for an initial public offering worth up to $12-billion (U.S.) should give investors pause: It comes amid strong commodity prices and a warning from Goldman Sachs that the boom in raw materials is drawing to a close.
Of course, it also doesn't help that Switzerland-based Glencore has a reputation for being secretive, which feeds nefarious theories behind the IPO plans - even as management stresses that the money raised will be used to make the company a bigger player on the commodities stage through acquisitions.
The company is a commodities trader that also owns big stakes in producers, such as its 34 per cent slice of global miner Xstrata PLC. There are thoughts that it will use some of the IPO proceeds to take full ownership of Xstrata to prevent the two companies from going head-to-head over other acquisitions.
But the IPO, which stands to be the biggest ever in London, raises at least one big question: Why now?
Ivan Glasenberg, Glencore's chief executive, attempted to head off concerns that the IPO will simply enrich the company's top executives.
"We are all invested in the company for the long term - no partners are taking money off the table and we're about to enter into the most exciting phase of our development," Mr. Glasenberg said.
Still, the Wall Street Journal estimated that the least wealthy member of the Glencore team - the poorest guy at the table - stands to be worth about $1.5-billion on paper, based on the company's total valuation of some $60-billion (the IPO is for a 20 per cent stake).
However, the timing of the deal is likely to be the bigger concern for prospective outside investors, given that it coincides with high commodity prices and strong demand for producers. Base metals and precious metals have been on a tear since the economic recovery began two years ago, and stocks within the S&P/TSX materials index have risen about 30 per cent over the past 12 months.
Now, some observers have been expressing caution over the commodities cycle. Earlier in the week, Goldman Sachs recommended stepping away from crude oil, copper, cotton and platinum, arguing that the risks outweighed the potential rewards.
On Thursday, the influential BCA Research said the bull market in commodities will be over by 2015, due to a combination of higher interest rates, increased supply and slowing Chinese demand. Copper, the star performer, will be hit particularly hard.
No doubt, IPOs can sometimes give investors lucrative opportunities: Look no further than Google Inc.'s $85 shares in 2004, which surged more than 700 per cent over the next three years. But when the IPO involves a sophisticated commodities trader operating in the midst of a commodities bull market, you have to wonder if this is a sign of a market top.