A good deal of creativity was forced to generate US$700 million indebted and equity to match the making of a potash mine in Saskatchewan.
Creativity was needed because Karnalyte Resources, the owner of the mine, lacked the balance sheet and also the share price to boost the required capital by itself. Last September, to aid in that process, Karnalyte Resources retained Dundee Capital Markets as its adviser. Philip Williams, a md, was the lead banker on the file.
Given its own situation, Karnalyte considered Gujarat State Fertilizers and Chemicals Limited (GSFC) – a publicly listed company in India whose major shareholder is really a unit from the state government of Gujarat. GSFC is a shareholder (19.9 per cent) in Karnalyte since 2013 and has signed a 20-year agreement to purchase 56 per cent from the mines’ output when it is operational.
Here would be the important elements in the financing package, the overall goal of which was to keep a 3:1 ratio between debt and equity:
US$500 million via 20-year senior secured debt: Credit, which is backstopped by GSFC, will be syndicated among several banks, many of which are expected to become from India. SBI Capital Markets, a unit of the State Bank of India, is leading the syndication efforts.A seven-year offering of subordinated unsecured debt: While investors are purchasing a coupon-paying debt instrument, the debt will be considered equity by the project lenders for that purposes of the debt-equity ratio. At the end of seven years, Karnalyte is needed to enhance the funds needed to repay your debt by means of an equity financing. (It might also refinance your debt at the end of seven years.) If for whatever reason, Karnalyte can’t enhance the equity after seven years, GSFC is responsible for repaying the borrowing.An equity raise: Karnalyte will hire an underwriter then sell shares to investors. Plans demand the equity raise and also the unsecured debt to be comparable size.
GSFC, which has decided to fund any cost overruns on constructing the mine, has agreed to lots of conditions. A key condition is the fact that GSFC is needed to conserve a 51 per cent voting stake in Karnalyte while the secured debts are outstanding. (That voting interest is not necessarily GSFC’s economic interest.)
To ensure GSFC maintains a 51 per cent voting interest, the concept of a retractable special voting has been introduced. The SVS enables the Indian banks, that are part of the senior debt group, to syndicate and lend to a Canadian project.
Once that debt is repaid, the SVS is going to be retracted.
