GLENCORE has filed a claim in the English courts against Clarendon Alumina Production (CAP) to block the forward sale of alumina to Hong Kong-based Noble Resources.
CAP, which owns a 45 per cent stake in Jamalco, has already received US$75 million of a US$120 million prepayment facility that would see the Jamaican holding company supply between 3.4 million and 6.1 million tons of alumina to Noble over the next 12 years.The agreement between the Hong Kong-based company and the Government agency also requires CAP to pledge all its shares in Jamalco to secure the deal, while it paves the way for the Government to finally divest its stake in the alumina refinery.At the same time, the Government is offering CAP noteholders a one-to-one debt exchange of principal, which aims to replace US$162 million ($16.5 billion) in debt owed by the state agency with bonds that will be owed by the Government.CAP previously secured a deal that requires it to supply specified annual quantities to Glencore, which now alleges that delivery of alumina to Noble would put the Government agency in breach of its contractual obligations to Glencore “based upon Glencore’s understanding of CAP’s current alumina production forecast”, according to filings by CAP to the US-based Securities and Exchange Commission (SEC).The minority shareholder in Jamalco got an interim injunction filed against it in the Jamaican courts discharged on July 24, but Glencore’s claim filed in the English courts is still pending. In that action, the global diversified natural resource company seeks declaratory relief and monetary damages, as well as “an injunction against CAP from supplying alumina to Noble unless CAP first has alumina available to meet annual quantities due to Glencore”.For the first six months of 2013, Jamalco’s export volume was down 10 per cent and less than 75 per cent of its 1.4 million metric ton (tonne) capacity was utilised, suggesting that the refinery is able to deliver another 300,000 tonnes of alumina a year.However, Alcoa is entitled to 55 per cent of the plants output, while it is not clear if the Government agency can redirect any of the current production that belongs to it (the remaining 45 per cent) to Noble.In any case, CAP believes that it will have sufficient alumina to meet its obligations under both supply arrangements. But if Glencore is successful in the English courts, the Government agency may not be able to make payments on its outstanding debt, while supply contracts could be adversely affected.The new prepaid sales agreement requires all funds to be repaid to Noble by June 2025, and the supply of alumina volumes will be offset against the debt.Until then, the Hong Kong-based firm has the option to purchase all or part of CAP’s interest in Jamalco, at market price.The proceeds of the first disbursement were used to repay existing amounts owed by CAP to Jamalco “in respect of its obligations under the joint venture agreement between CAP and Alcoa Minerals of Jamaica”.But the prepayment facility also requires the Government to directly take on CAP Notes.“As a condition precedent to the first disbursement, CAP was required to show evidence that the Government of Jamaica is undertaking the exchange offer and consent solicitation in relation to the CAP Notes,” said the SEC filing.Noteholders have until August 16 if they want to get all of the principal owed to them in the debt exchange. If they wait until August 28, then they will just get 98 per cent of their principal. And if bondholders don’t participate at all, they will see their debt being subordinated to the sales agreement, which, in the event of CAP’s bankruptcy or liquidation, “Noble would be entitled to be repaid in full before the Jamalco Co-tenancy Assets would be available to satisfy its obligations on the CAP Notes”.Jamaica has already obtained commitments to participate from eligible holders of approximately 44.39 per cent of the outstanding principal amount of the CAP Notes, including 11.75 per cent held by Jamaican interest.Shifting the debt obligation from CAP to the Government, including making amendments to the Fiscal Agency Agreement, which would keep Jamaica as the guarantor of CAP Notes, would give the Government the flexibility to divest its stake in the company without “triggering the change of control provision or the negative pledge provision”.Even if proposed amendments are not approved, “CAP would still intend to divest its stake in Jamalco and CAP will evaluate alternatives that would not require the consent of eligible holders”, according to filings to the SEC.Clarendon Alumina has been in a loss-making position for years, having accumulated a US$250 million deficit and long-term debt of US$447 million up to March 31, 2013.The company also expects to lose another US$19 million this financial year, which ends next March, but the removal of the CAP Notes from its balance sheet and the reduction of debt owed to Jamalco would put the state agency in a positive equity position.On the other hand, future revenue will likely be negatively impacted, given that alumina volumes have been commited to Noble and Glencore.Indeed, completing the prepayment transaction unhindered by court actions, and the possible sale of the 45 per cent stake in Jamalco to Noble, would enable the Government to meet a structural benchmark set under the latest International Monetary Fund (IMF) agreement.The IMF requires that either the divestment of CAP or an asset lease agreement, with an option to purchase, be implemented by December 2013.CAP owns a 45 per cent stake in Jamalco, headquarted in May Pen, Clarendon.The Glencore headquarters in Baar, Switzerland.View the original article here
Glencore takes CAP to court
