Paulson clogs AngloGold bid to be debt free

President and portfolio manager of Paulson & Co. John Paulson.

President and portfolio manager of Paulson & Co. John Paulson.

Published Sep 12, 2014

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Johannesburg - Billionaire investor John Paulson is getting in the way of AngloGold Ashanti’s plan to rid itself of debt.

Following the biggest one-day bond rally in seven months, sparked by the gold producer’s announcement two days ago that it will raise $2.1 billion (R23 billion) in stock and spin off its non-South African assets, the hedge fund manager said he opposes the plan because it will destroy shareholder value.

That didn’t stop yields on AngloGold’s April 2020 dollar bond from falling to the lowest since July 28 yesterday.

While the company said it’s seeking to transfer about $1 billion of debt to a new company and pay off another $2.1 billion as part of the plan, shareholders including Paulson, whose New York-based fund holds 6.6 percent of AngloGold, could block it.

That would leave AngloGold, the world’s third-biggest miner of the metal, exposed to debt levels that last year exceeded 100 percent of its equity, data compiled by Bloomberg show.

“The main risk is they still need shareholder approval for a rights issue,” Jon Brager, a credit analyst at Hermes Fund Managers in London, which manages $45 billion in assets including AngloGold bonds, said yesterday by phone.

If the vote doesn’t pass, “they’ll have to come with a new plan and in the interim the bonds can trade down,” he said.

 

Settling Debts

 

Rates on the miner’s $700 million of April 2020 bonds have decreased 180 basis points to 4.88 percent this year, according to data compiled by Bloomberg.

That compares with a 48 basis-point drop in the average yield for emerging-market metals and mining companies in 2014, JPMorgan Chase & Co. indexes show.

The spot price of gold has risen 2.8 percent this year to $1,235.74 an ounce by 11:03 a.m. in Johannesburg.

AngloGold will use the proceeds of the share sale to either buy back bonds in the market or settle bank debt of $430 million, “or a combination of both,” Stewart Bailey, a company spokesman in Johannesburg, said by phone on September 10.

The proposals for the rights offer and the restructuring will require approval by 75 percent of shareholders, he said yesterday.

AngloGold will also pay back 35 percent of its $1.25 billion of bonds due in July 2020, as provided for by the terms of the sale last year, it said in regulatory filings.

“The rest of the bonds will be tenders in the market,” Bailey said.

“There’s a range of options and we haven’t decided what we’re going to do.”

 

Cash Strain

 

AngloGold will stand as guarantor of the debt it transfers to the spinoff company operating mines outside South Africa, he said.

The international company could require higher capital spending on its mines than the assets AngloGold will retain, placing strain on cash flows, Charl Malan, a mining analyst at Van Eck Associates in New York, said by phone on September 10.

“The cash flow generation is in South Africa,” Malan said. “It is not international.”

There should be consensus among investors that AngloGold has to lower its debt levels, even if not all agree on the proposal put forward by the company, Hermes’s Brager said.

“Everyone knows new capital needs to be put in,” he said.

“There is little risk of nothing being done.” - Bloomberg News

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