Soc. Quimica & Minera de Chile SA’s controller Julio Ponce and three other executives at the fertilizer producer’s holding companies are being accused by Chile’s securities regulator of buying shares at below market prices and selling them back at inflated prices.
Ponce has 20 days to respond to charges related to trades carried out between the so-called cascade companies through which he controls SQM, the regulator known as SVS said in a statement on its website yesterday. The executives --including Aldo Motta, chief executive of Norte Grande SA (NORTEG), and Ponce adviser Roberto Guzman-- will face sanctions if the breaches are verified, the regulator said. SQM shares slumped today.
The accusations come as Ponce prepares to seek approval for two of the holding companies to sell new shares at meetings scheduled for Sept. 27. The capital increase is part of an effort to satisfy holders of debt secured by SQM shares that plunged last month on prospects of declining potash prices. The SVS charges risk impeding the restructuring plan Ponce needs to shore up $1.5 billion of debt, according to Moneda Asset Management, a minority shareholder fighting the plan.
“We envisage that this will block the shareholder meetings,” Pedro Pablo Gutierrez, a Moneda director, said by telephone yesterday. “These are very serious infringements.”
Motta wasn’t available to respond to the accusations, an assistant said by phone. Ponce declined to comment through an assistant, who asked not to be named citing internal policy. SQM has no comment on the matter, said a public relations representative, who asked not to be named citing company policy.
SQM, the region’s biggest potash producer and the world’s largest iodine and lithium maker, declined 1.8 percent to 15,907 pesos in Santiago today. Chile’s benchmark equity index gained 0.3 percent.
After a yearlong probe, the SVS is focusing on trades carried out from 2009 to 2011 between the holding companies and Ponce’s closely held SQ Inversiones SA, the regulator said in yesterday’s statement, without identifying the transactions. The companies made $6.4 billion of trades among themselves in that span, Moneda wrote in an Aug. 2 letter to the regulator.
On March 29, 2011, Soc. de Inversiones Oro (OROB) Blanco SA sold 163 million Soc. de Inversiones Pampa Calichera (CALICH) SA shares at 726 pesos, 10 percent below the previous day’s price, to Norte Grande and SQ Inversiones. On Nov. 7 of the same year, Potasios de Chile SA (POTASIOA) bought 151 million shares in Calichera for 1064.53 pesos while SQ Inversiones sold 137 million at 1065 pesos.
Companies related to Ponce and Guzman sold shares at “significantly higher prices” than market value to the detriment of the holding companies that bought them, the SVS said. The trades affected the correct functioning of capital markets, it said.
Since 2007, Ponce has tripled consolidated debt at Norte Grande, the company through which he controls 32 percent of SQM. Most of the bank loans and bonds were guaranteed using shares in SQM, which has slumped 42 percent this year as suppliers that controlled almost half of the world’s potash exports suspended their marketing venture.
Norte Grande will call a shareholder vote to sell $177 million in new shares, while Oro Blanco plans to sell $290 million, according to separate filings sent Aug. 29.
Ponce wrote in a letter to the securities regulator on Aug. 2 that the drop in SQM shares “has left Norte Grande and its affiliates in a delicate financial and credit situation.”
The SVS’s case against the SQM holding companies shows Chile’s institutions work, Finance Minister Felipe Larrain told reporters today in London, where he is helping promote the country to prospective investors.
“These kinds of things happen everywhere, both in developed and developing markets,” Santiago-based newspaper Diario Financiero cited Larrain as saying on its website. “I’d say that it doesn’t affect confidence.”
To contact the editor responsible for this story: James Attwood at email@example.com