[miningmx.com] – THE steep 47% decline in the shares of Exxaro Resources this year has forced the firm’s empowerment consortium Mainstreet 333 Ltd to repay a portion of a R3.8bn preference share facility.
The facility was raised in 2013 in order for Mainstreet 333 – known as MS333 – to refinance its initial 52% stake in Exxaro Resources. The facility was secured by shares in Exxaro which have been under pressure owing to poor market conditions.
Mzila Mthenjane, head of corporate affairs for Exxaro, said the company would loan R400m to MS33 which the consortium would use to “improve its convenants” with the providers of the preference share facility; banks, in other words.
It is then intended for MS333 to repay Exxaro half of the R400m by selling a small portion of its stake in Exxaro to the market, and not necessarily a black-owned partner as the share sale would still mean Exxaro was 50% plus one share empowered.
“Exxaro will therefore extend the loan to MS333, on commercial, arm’s length terms, by drawing down on its existing debt facilities,” the group said in an announcement to the Johannesburg Stock Exchange today.
“Further discussions between MS333, related parties, Exxaro and the funders, regarding a longer-term solution, are in progress and will be communicated once finalised,” said Exxaro in its announcement.
The investment by MS333 in Exxaro was typical of its time in that the black-owned partner’s ability to repay interest and capital on its investment predicated on dividend income, and with the stake in the business used as collateral for the loan.
Exxaro said on June 25 that poor trading conditions for coal and lower income from its investment in Kumba Iron Ore would hurt its own ability to meet its debt covenants and pay dividends – although the firm’s finance director, Wim de Klerk, toned down the likelihood of defaulting on its borrowings.
Nonetheless, it was a surprise to the market to see Kumba Iron Ore entirely pass the interim dividend which would, in turn, have significant consequences for Exxaro and MS333 which has Sipho Nkosi, Exxaro’s CEO and CEO designate, Mxolisi Mgojo, as shareholders.
Shares in Exxaro Resources fell 4.8% today to take the return over seven days to a negative 8.5%. It was not alone, however, with Kumba Resources falling 7.3% while Lonmin plummeted 11.5% to reach its lowest level ever.
