Glencore, the secretive commodities trader on the cusp of a record IPO, may pay a high price for its low profile, as corporate governance fears damage its ability to achieve a top price for its stock.
Half of the respondents in a Reuters survey of 12 prospective investors said worries about how Glencore is managed have lopped as much as 20 percent off what they might have paid for a stake in the company, which is worth as much as $70 billion according to some sell-side analyst estimates.
One investor forecast a discount of up to 50 percent.
The investors polled represent the equity divisions of investment houses running more than $2 trillion in assets.
Some controversial board appointments, including the late naming of septuagenarian Simon Murray as chairman several hours after Glencore's announcement of its intention to float, have rung alarm bells about how easily Glencore might adapt to life as a public company.
It's a business that thrives on secrecy. Why would you want to subject yourself to the transparency you have to have in a public company if you didn't have to? Jason Webster, manager of the VAM Commodities Equity Fund, said.
Investors say Glencore's size should ultimately secure its swift passage to market but some fear for the quality of communication from management.
Do they really need nine banks on the book? They are hiding a lot of analysts here so it raises questions as a fund manager about where you get objective comment from, said one UK fund manager, who declined to be named in line with company policy on talking to the media about live IPOs.
Three-quarters of the managers polled said they didn't expect Glencore's final price to represent value as doubts abound about the motivations for the float.
Analyst estimates on the pre-money value of Glencore's equity range from $52-$70 billion, research from four houses including Bank of America/Merrill Lynch and Liberum Capital shows.
Despite Glencore's investment pledges, half the investors said they were unconvinced by Glencore's rationale for listing.
I am fairly suspicious about what they want the proceeds for. I believe they are just cashing out the management structure, said a second UK manager, who also requested anonymity to avoid any potential impact on the stock pricing.
Almost 60 percent of the managers polled said they didn't like Glencore's trading and mining business model and would sooner invest in more focused companies already on the market.
They argue the trading business combined with the other assets gives them a unique visibility in the commodities complex and that the assets they own are growing fast, said a third manager, who asked not to be named until he had made his final decision on the stock.
But I didn't really buy the latter and the former is difficult to value. I don't see why I should be paying a premium at this point. I'd want to buy at a value which is comparable with other mining stocks in the market, the manager said.
Reflecting this, half the respondents said they didn't think Glencore would price at a premium to the UK mining sector (where the biggest four players including Rio and BHP trade at between 7.1 and 8.8 times forecast earnings, Starmine data show), while more than half of those surveyed said they felt shares would be available more cheaply when the fanfare surrounding the IPO fades.
Perform was brought to the market too expensively a short while ago, and it promptly fell to pieces. If Glencore gets brought expensively, then you could expect to see the same sort of thing, the second manager said, referring to the digital media company whose stock was trading at 227p on Thursday after shedding around 13 percent of its value since its April listing. Five of the 12 managers flagged a concern that the commodities market had reached its peak as one of their biggest reservations about buying Glencore shares.
The findings also point to broad worries about how Glencore's board can incentivize its former partners to perform when the IPO will herald windfalls far larger than might ever be achieved in inherently volatile trading or mining activities.
We've seen plenty of examples where people have restricted stock but there are still ways of monetizing that value, VAM's Webster said. Glencore are very savvy traders, they know when to pick a market top.
(Additional reporting by Claire Milhench, Cecilia Valente and Chris Vellacott in London, with Martin de Sa'Pinto in Zurich; Editing by David Holmes)