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ENRC Faces Early Repayment of $1.2 Billion Debt After Takeover

Eurasian Natural Resources Corp. (ENRC), the subject of a takeover bid by its founders and Kazakhstan, may have to pay $1.2 billion of its debt early once the transaction is complete.

The company could be forced to pay about $500 million to clear a revolving credit facility, $500 million to redeem promissory notes and about $200 million in financing, Chief Financial Officer Zaure Zaurbekova said on a call with reporters today. The final amount will depend on the outcome of talks with lenders, Chief Executive Officer Felix Vulis said on the call.

ENRC’s founders Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov in June offered $2.65 in cash and 0.23 of Kazakhmys Plc (KAZ) stock for each share to take the company private. Investors in the ferroalloy company have until Aug. 28 to accept the offer after shareholders of Kazakhmys, which owns 26 percent of the producer, on Aug. 2 voted in favor of the transaction.

The takeover “may trigger change-of-control clauses in various loan facilities and other arrangements existing across the group,” ENRC said. “These change-of-control clauses generally allow the lender to demand repayment within 14 days.”

The company had net debt of $5.45 billion at the end of June, it said in a statement today.

“The most relevant” debt is the $500 million promissory note owed to First Quantum Minerals Ltd. (FM), Nomura Holdings Inc. said in a note to investors.

First Quantum

In 2010, ENRC took control of copper and cobalt mines in Democratic Republic of Congo that Israeli billionaire Dan Gertler acquired from the nation’s government following their seizure from First Quantum.

First Quantum sued ENRC, which settled in 2012 and agreed to pay $1.25 billion for First Quantum’s share of the assets. The deal consisted of $750 million cash payment on closing and a deferred payment of $500 million in the form of a three-year promissory note with an interest coupon of 3 percent.

“The announcement of the bid has created a degree of uncertainty regarding the going concern of” ENRC, the company said in the statement. “Management considers the risk of a material issue to be low given the execution of backstop arrangements by the bidding consortium.”

ENRC today announced that first-half profit declined 55 percent to $221 million on lower prices of ferroalloy, used in steelmaking, and higher costs of financing. Sales slid 1.1 percent to $3.2 billion. It sold ferroalloys 11 percent lower than a year earlier, while the cost of sales rose 9 percent to to $1.92 billion in the period. ENRC won’t pay dividends.

ENRC booked an impairment charge of $161 million, mainly on the value of Boss Mining, its copper and cobalt unit in Congo.

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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