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Thursday, 22 February 2018

Restructuring

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Mongolian Mining Corp stepped into unknown territory with the country’s first offshore debt restructuring, but came up with a solution that treated all parties fairly and overcame foreign ownership restrictions.

The coking coal miner could easily have emulated some other Asian commodities companies and imposed punishing terms on its foreign creditors. Instead, it opted for a market-driven solution that delivered equitable treatment and kept investors onside should it seek to access offshore capital again in the future.

MMC had to deal with US$600m of senior notes, a US$93m bank facility and US$72.2m of promissory notes, plus accrued interest, but its key production assets were secured against a loan taken from development finance institutions.

The company managed to negotiate the redemption of that senior secured facility, which was replaced with Tug105.6bn (US$43.7m) of tugrik-denominated promissory notes from Mongolia’s Ministry of Finance, freeing up the assets to be used as security for the revamped debt pieces.

Its new financing solution involved a US$30m first-ranking senior secured facility and US$395m of senior notes, almost halving its debt. These were issued by Energy Resources, the operating company, providing security over all of the meaningful production assets.

MMC was limited in the amount of debt it could convert to equity, as it needed to remain majority-owned by Mongolian investors in order to stand a chance of participating in a consortium to develop the country’s Tavan Tolgoi coalfield.

As a result, it converted part of its debt to shares comprising a 10% stake, and the MMC holdco issued US$195m of perpetual securities, which have equity accounting treatment.

The loan and senior bonds pay interest in kind or in cash, depending on the price of coking coal, allowing MMC to reward investors when it is doing well and conserve its cash when the coal price is low.

The bonds also come with contingent value rights which pay out based on certain trigger events linked to company performance, while the perps also step up at certain trigger points.

The new structure was gentle on creditors and allows the company some breathing space while it attempts to win a transformational contract. Should MMC win the right to work on the jumbo TT project, creditors will be amply rewarded for their patience.

Reaching this point required more than just crunching numbers. MMC filed for provisional liquidation once bondholder talks were sufficiently advanced, protecting it from an attempt by one of the lenders to wind it up, which would have destroyed value for all parties involved.

JP Morgan and SC Lowy were restructuring advisers to the company, while Moelis advised a steering committee of bondholders.

To see the digital version of this report, please click here

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