Mercuria Energy Trading SA, a closely held commodities trader, is in talks with potential investors to sell a stake of much as 20 percent of the company, its chief executive officer said.
The eight-year-old company, based in Geneva, is seeking to expand and buy assets as it enters metals and agriculture markets and enlarges operations in China and the U.K. Mercuria is in early discussions with several parties and hopes to reach a deal within 18 months, Marco Dunand, who is also a co-founder, said, declining to give a valuation.
“We could envisage an investor coming in for a 10 to 20 percent stake in Mercuria if we could find the right partner,” Dunand said in an April 24 interview in Lausanne, Switzerland. “But this is in the context of long-term partnership, as opposed to a fast investment turning into an initial public offering.”
The move comes almost a year after Mercuria’s competitor Glencore International AG (GLEN), based in Baar, Switzerland, sold $10 billion of stock in an initial public offering to help fund acquisitions and expansion. That contrasts with Vitol Group, the biggest independent oil trader, which has no plans to sell shares, Ian Taylor, the company’s chief executive, said in an interview at the company’s London office last month. Out of Vitol’s 2,810 employees, 360 are partners in the company.
Energy trading companies buy and sell crude and refined fuels, trying to profit from short-term fluctuations in prices and mismatches in supply and demand. Owning oil fields or storage tanks give traders an asset base from which to sell.
Mercuria’s 2011 revenue was projected to rise to $75 billion, from $50 billion in 2010, the company said in September. It hasn’t made public its final figures for last year. Glencore’s revenue last year was $186 billion.
Dunand said the company will open a 15-person office in Shanghai next month to start trading base metals and iron ore. Mercuria also trades emission credits in China, where it runs a carbon market joint venture with Datang Corporation Renewable Power Co. (1798)
“We think China is a natural place to be because that’s where a lot of the demand is,” he said. “Trading inside China is reasonably complex because you need to have a good understanding of the licensing, to respect their law” and be able to trade the local currency, he said.
The company hired two metals traders in London to add to the 15 staff there, who are active in U.K. natural gas and power markets.
Volatile Oil Prices
Mercuria will also enter the agricultural commodities markets, after it appointed a head trader in Singapore and two others in Geneva, Dunand said, declining to identify the people.
Mercuria, which has about 950 employees globally, was founded in 2004 by Dunand and Daniel Jaeggi.
Near-term oil prices will probably stay volatile and “may whip between contango and backwardation,” Jaeggi, who is also Mercuria’s head of trading, said at the Financial Times Global Commodities Summit on April 24 in Lausanne. A market is in contango when contracts closest to expiry cost less than later dated deliveries, while backwardation is the opposite structure.
Long-term crude prices are stabilizing at about $90 to $95 a barrel while prices for immediate delivery will be more volatile, Jaeggi said. North Sea Brent crude traded at about $119 a barrel today, after rising 11 percent this year.
Mercuria may agree a partnership deal for its midstream unit, Vesta, which owns oil terminals and biofuel plants, before the end of the year.
Rising shale crude production in the U.S. is spurring the need for more infrastructure and transportation, another potential area where Mercuria may buy assets, after it divested exploration and production interests in North Dakota’s Bakken area, Dunand said.
New production at the company’s coal mine in Indonesia will start in the next few weeks, he said. Mercuria sold its stake in Optimum Coal Holdings Ltd. (OPT), a South African company, to Glencore. Such asset sales are “increasing cash available for opportunities,” Dunand said.
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