Petropavlovsk to sell IRC holding to Liechtenstein firm Stocken

Petropavlovsk has entered into a preliminary agreement with Stocken Board, a Liechtenstein-incorporated investment company, setting out non-binding terms on which it would sell a 29.9% shareholding in IRC to Stocken, out of its 31.1% shareholding.

The London-listed firm said it would be subject to certain conditions being met, including the release of its obligation to guarantee IRC's loan facilities with Gazprombank.

It explained that the preliminary agreement included the proposed terms on which Stocken would agree to purchase 2,120,922,527 IRC shares from Petropavlovsk, representing 29.9% of IRC's outstanding shares, for a cash consideration of $10m.

Under the terms of the guarantees and related agreements, Petropavlovsk required the consent of Gazprombank (GPB) to enter into a binding share sale and purchase agreement in relation to the IRC shares.

If the consent of GPB was received and the parties entered into a sale and purchase agreement, completion would be conditional on the termination and irrevocable release of the group from all loan guarantees given to GPB under the facility agreements signed between Kimkano-Sutarsky Mining and Beneficiation Plant , a subsidiary of IRC and GPB, in December 2018.

It would also be conditional on the receipt of any consents that could be required under the company's $500m 8.125% notes maturing November 2022, or confirmation by the board that none were required.

If a sale and purchase agreement was entered into, the release of the guarantees, or at least the execution of legally binding agreements which provide for the termination of such, was expected to be achieved within 180 days from the later of the signing and consent, or a later date as agreed by the parties, failing which the agreement would terminate.

Petropavlovsk said that if Stocken was unable to demonstrate satisfactory progress in meeting the deadline within 90 days from the later of signing and consent, and which it could not resolve within 10 business days, any sale and purchase agreement may be terminated by Petropavlovsk on five business days' notice, provided that GPB had not released or agreed to release Petropavlovsk from the guarantees by that time.

Under the preliminary agreement, it was proposed that following signing, the shares in IRC held by Petropavlovsk would be transferred to Stocken within 10 business days of the later of the guarantees being released and Petropavlovsk's noteholders consenting to the transaction, if required.

A cash consideration of $10m would be payable by Stocken for the 29.9% shareholding up to 31 December 2021.

The consideration would be subject to adjustment if IRC undertook a share or other capital issue at less than the market price of the shares at the date of the agreement, but prior to completion, the board explained.

It also said that under the preliminary agreement, it was proposed that the sale and purchase agreement would include a put option, which could be exercised by Stocken, to provide them with a period of time to complete additional due diligence.

Petropavlovsk said it was not proposed that the option would be exercised should there be a deterioration in IRC's performance, and thus would incorporate downside protection for Petropavlovsk.

The proposed option was proposed to be capable of exercise by Stocken between the date of completion and full payment of consideration, or 31 December 2021, whichever is earlier.

Should the option be exercised by Stocken, the 29.9% shareholding in IRC would be returned to Petropavlovsk, and any consideration paid up to that date would be returned to Stocken.

“There would be no effect on the guarantee release and the IRC shares which Petropavlovsk transferred to Stocken upon completion will be returned to Petropavlovsk without the guarantees attached,” the Petropavlovsk board said in its statement.

The proposed option would also provide downside protection to Petropavlovsk in the event of a deterioration in IRC's financial performance during this period, with the exercise of the option wholly dependent on IRC's financial performance remaining within a number of thresholds.

The first was a net debt of less than $275m, the second was a net debt-to-EBITDA ratio being 35% above that on the date of the agreement, and the third was a market capitalisation which did not fall below 50% of the market capitalisation as at the date of signing.

Should any of those thresholds be breached, Stocken would not be able to exercise the option.

While Stocken and Petropavlovsk had entered into the preliminary agreement, the board said there could be no certainty that GPB will consent to Petropavlovsk entering into the sale and purchase agreement, as well as to the terms of the agreement and whether GPB would agree to release the guarantees, or the terms on which it would agree to do so.

Petropavlovsk's remaining 84,977,473 shares in IRC, equating to an interest of around 1.2%, were not proposed to be subject to the sale and purchase agreement.

“We are very pleased to announce that we have agreed terms for what would be the first stage of a potential transaction which is one of a number of opportunities we have been exploring to relieve the company from the loans it currently guarantees on IRC's behalf, while realising a fair and reasonable value for our shareholding,” said chief executive officer Dr Pavel Maslovskiy.

“The guarantee has a negative impact on our credit rating which increases the cost of our debt.

“We expect that the release from the guarantee would improve the company's credit profile and assist the ongoing momentum of Petropavlovsk's equity and debt re-rating.”

As a result, Dr Maslovskiy said the company believed that the $10m cash consideration proposed represented a “fair and reasonable value” for its holding in IRC, given that it would enable the firm to relinquish the guarantees and enable it to focus on the successful implementation of its strategy, which is to consolidate its position as a leading Russian gold miner with the ability to process a wide range of refractory gold ores.

“I look forward to working with both Stocken and Gazprombank to enter into the sale and purchase agreement, and ultimately successfully complete this transaction.”

At 1120 GMT, shares in Petropavlovsk were up 0.13% at 15.6p.