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Debt behind Anglo sale

Shaun Harris | Thu, 13 Aug 2009 17:56
[miningmx.com] -- ANGLO American's proposed two-tier sale of its 49.5% stake in Tongaat Hulett has a tinge of desperation about it when viewed against the background of a mining giant with net debt of $11.3bn (at its end-June interim period), equal to gearing of 33.1%.

But the Tongaat Hulett stake, with a market value a little short of R500m, is small fry after Anglo's two recent convertible bond issues totalling about $3.7bn.

Still, the timing of the Tongaat Hulett transaction is good, following strong interim results and a buoyant share price performance. What does seem patently clear is that Anglo needs cash (hence no dividend payment) and needs to retire debt.

Analysts tend to be a little shy of being openly critical about Anglo. But a note from an Investec Asset Management fund reads that Anglo is not worth holding at R250 per share, given the uncertain outlook.

The main concern is the overheating Chinese economy and the effect this could have on Anglo should demand from China drop off.

Equity off-load

Anglo media spokesperson James Wyatt-Tilby said the transaction was "continuing the sale of non-core businesses". Anglo is offering the Tongaat Hulett shares to institutional investors through a book build.

The intention seems to be to offload as much equity as possible, followed by a FirstRand underwritten mop-up of R2bn in exchangeable bonds if necessary.

Allowing for the size of the Tongaat Hulett stake, the issue of the exchangeable bonds probably will be necessary.

Wyatt-Tilby said pricing and details of the issues will be announced as soon as the books have closed.

Tongaat Hulett CEO Peter Staude did not want to comment beyond the announcement to the JSE which said the transaction was "an opportunity to increase the liquidity" of the group's shares as well as extend the spread of local and foreign shareholders.

Probably most important for Tongaat Hulett, however, is that it removed an uncertain shareholder. Staude said the sale would "enable investment by emerging market fund managers, who were previously constrained by the limited liquidity".

However, the market did not seem to like the deal. At 9 150c/share Tongaat Hulett had lost nearly 9% following Wednesday's announcement (at about 12:30), while the All-share index was down 0.9%.



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