28th Apr 2016 09:36
LONDON (Alliance News) - Kenmare Resources PLC Thursday said it has entered into a conditional subscription and relationship agreement with a chemicals trading company that could form part of its capital restructuring plan aimed at reducing debt.
Kenmare struck the deal with King Ally Holdings Ltd, but the agreement is conditional on a number of things, including support from its lenders, further fundraisings, and shareholder approval.
Kenmare was expected to have agreed a deleveraging plan with its lenders by the end of January, but those discussions continue as Kenmare tries to get the lenders to support its proposed plan.
The Mozambique-focused miner is hoping to conduct a capital restructuring by raising no less than USD275.0 million mainly to reduce debt but to also provide working capital to keep the company going.
Importantly, the deal signed with King Ally would see the chemicals trading company inject USD100.0 million into the London-listed firm.
Kenmare already has another potential investor after striking a deal with the State General Reserve Fund, a sovereign wealth fund of Oman, which also would plough USD100.0 million into Kenmare.
That means the miner would still need to find another USD75.0 million through equity fundraising even if the existing deals go through, with Kenmare stating this would need to be raised from both "new and existing shareholders". Kenmare said there would be an opportunity for existing shareholders to participate in the fundraising "on the same terms" as King Ally and the sovereign wealth fund.
Another condition of the deal with King Ally, and also an important one, is that King Ally can not hold more than a 29.9% stake in the company once the wider capital restructuring has happened.
Under AIM rules, an individual or a company that acquires more than a 30.0% stake in a company is required to make an offer for the rest of the company.
The approval from lenders, which includes project lenders and Barclays PLC-owned Absa Bank Ltd, is likely to be one of the biggest potential barriers to Kenmare carrying out its plan, and as of Thursday the lenders had "not yet" agreed to the deleveraging proposal. However, shareholders will also need to approve the plan.
"Accordingly, a significant number of uncertainties remain and there can be no certainty that the capital restructuring, including the investment by King Ally, will be completed," said Kenmare.
The potential for USD275.0 million, which equates to around GBP188.3 million, to be injected into Kenmare to partly resolve its debt problems would be transformational for the company, as it currently only has a market capitalisation around GBP20 million. Kenmare currently has 2.78 billion shares in issue in London.
However, the amount that may be raised by the deleveraging plan still will not be enough to make Kenmare debt free. In its last financial statement covering the first half of 2015, the miner said it was USD329.9 million in debt, of which around 61% was at a fixed interest rate with the remainder on a variable rate.
The miner plans to release its full-year results covering 2015 on Friday, suggesting more detail could emerge about the deleveraging plan, as well as an update to the current debt figure.
Late last year, Illuka Resources Ltd withdrew a takeover offer for Kenmare after concluding the deal would be unlikely to be pushed through following a deterioration in the commodities market environment.
Iluka made a GBP190.0 million takeover bid for Kenmare back in April 2015, when Kenmare's shares were trading considerably higher than they are now, following the start of talks back in June 2014, but Illuka then lowered its offer in November, prior to the deal falling through.
Kenmare shares were trading down 10% to 0.812 pence per share on Thursday.
By Joshua Warner; [email protected]; @JoshAlliance
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