ENRC founders make lower buy-out offer

By bne IntelliNews June 25, 2013

Eurasian Resources Group B.V, set by three founders of Eurasian Natural Resources Corp (ENRC) and the Kazakh government, proposed a lower buy-out offer for ENRC. According to the proposal, ENRC investors will receive cash and Kazakhmys stock worth a combined 234 pence per 1 share based on June 21 share-price close. This is much less than 260 pence in May although the structure of the offer remained unchanged.

The decrease was caused by exchange rate movements and the fall in Kazakhmys share price by 20% since the first proposal was made. The offer was accepted by copper major Kazakhmys which holds 26% stake in ENRC. However, the independent board committee of ENRC stated that the offer 'materially undervalues' the company.

Still, thanks to Kazakhmys support, the deal will go ahead. The only potential obstacle is to get an approval from Kazakhmys investors to proceed with the offer which is rather improbable as voting against the deal would be unproductive. Kazakhmys will receive USD 887mn in cash plus 77mn of its own shares from the ENRC founders which can be used to finance the company's development of copper projects. These shares will increase Kazakhmys' free float to 58% from 37% and thus boost liquidity on the bourse.  

The founders of ENRC Alexander Mashkevitch, Ilijan Ibragimov and Patokh CHdiev together with the Kazakhstan State Property & Privatization Committee of Ministry of Finance hold 55.4% in ENRC and want to take over ENRC in order to delist the company from the LSE. Ehen company made its IPO on the LSE in 2007 it was valued at GBP 6.8bn. The recent offer puts its value at GBP 3bn.

ENRC produces ferroalloys, iron ore, aluminium and copper. The company conducted acquisitions in Brazil and Africa which saddled it with a net debt of over USD 5bn. Moreover, ENRC currently faces U.K. Serious Fraud Office investigation into corruption activities in Africa and suffered from several boards shakes.

IntelliNews Comment: The corporate scandal around ENRC and the current efforts to delist the company, together with the default of BTA Bank, its nationalisation and the two debt restructurings will undoubtedly have a negative impact on foreign investors' perception of Kazakh companies. This may lead to a more restrained position of foreign investors towards miners from Kazakhstan which in turn may jeopardise the recent government's intentions for metal sector development. We note that it is widely believed in Kazakhstan that unlike the oil sector, the companies operating in the metal sector are closely connected to the ruling elite. This may explain Kazakhmys approval of the offer even though investors potentially interested in this sector may feel exposed to higher risk.

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