Boliden shuns Bayas deal, will restructure

A restructuring deal that would see Boliden (BOL-T) retire a large part of its corporate debt has hindered the company’s plan to sell its Lomas Bayas copper project in northern Chile.

The restructuring, under which Boliden would issue US$251 million in new capital, requires that the company retain control of Lomas Bayas and the Fortuna de Cobre development project, which it had previously agreed to sell to Falconbridge (FL-T) and Noranda (NOR-T). That condition was insisted on by the consortium of Swedish banks, pension funds, and companies funding the restructuring.

Boliden had originally agreed to sell Lomas Bayas to Falco and Noranda for US$175 million, less a net debt of US$110.6 million. An option clause would have given Boliden a further US$15 million if Falco and Noranda had exercised the right to retain Fortuna de Cobre within five years.

Subsequently, Falco took over Noranda’s role in the deal, making it a straight Boliden-Falconbridge sale.

The agreement was subject to regulatory approval and also required the consent of the boards of directors of all three companies. Boliden says that last condition was not met. Falconbridge, though, is contesting the vendor’s right not to close the deal, arguing that the letter agreement signed last February came with Boliden’s confirmation that its board of directors and the majority of its lenders were already in agreement with the sale.

Falco spokeswoman Caroline Casselman said “we think we have a legally binding agreement” to purchase Lomas Bayas. “They obviously have a different take on that.”

Should the dispute wind up in the courts, those courts will likely be in Canada.

The Boliden restructuring agreement consists of a Kr1.14-billion (US$108-million) rights offering to common shareholders at Kr2 (US19) per share. Some existing shareholders have also agreed to take up any rights that are not exercised by other shareholders. A “standby” consortium of banks, institutional investors and unions is also backstopping the offering.

Another Kr1.5 billion (US$143 million) is to be raised by an offering at Kr2 per share, and will go straight to existing lenders to clear bank debt and close out Boliden’s hedges in Swedish, Norwegian and Canadian currencies. In this offering, Kr500 million (US$48 million) will be guaranteed by the “standby” investors and some other financial institutions.

Each common share entitles the holder to one right in the new offering. A right, in turn, can be used to buy two shares at Kr2 (29).

Boliden calculates that current shareholders will still hold 84% of the company’s shares after the restructuring if all the rights are taken up.

Boliden has roped in its former parent, the Swedish industrial conglomerate Trelleborg, as a principal investor in the new offering. Among the other sponsors are iron ore producer Luossavaara-Kiirunavaara, scrap dealers and recyclers Stena Metall, the Peab construction group, the municipal electrical utility in Skelleftea, insurer Skandia, the Swedish Shareholders’ Association, and several banks and pension funds.

Along with the shareholding, the new investors will get a number of seats on the Boliden board, and the company will be re-domiciled in Sweden.

Once the two rights offerings have cleaned up the balance sheet, Boliden plans to go to its lenders with a proposal to refinance the remaining debt. The proposal is to include a close-out of its hedge contracts, adding the losses on those contracts to existing debt, then to refinance under a new series of loans maturing between 2003 and 2006, at interest rates that reflect a stronger balance sheet. The exchange-rate hedges showed a paper loss of US$147.2 million at the end of the first quarter of 2001.

The Lomas Bayas project lenders are not included as part of the debt restructuring. The project itself carries a debt of US$112.7 million, and the lenders had agreed to extend the terms until the project met technical and financial completion tests.