OTCPK:KATFF - Post by User
Post by
DasuDasu1on Jun 19, 2018 9:05pm
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Post# 28195794
Some people on both sides still don't understand the deal
Some people on both sides still don't understand the dealRecap: What started all this was Glencore loading KCC with debt at usurious rates owable to itself. By virtue of the ownership structure in KCC, that debt was 25% Gecamine's and 75% Katanga's. Glencore's ploy with this was to extract all of KCC's value through interest payments. If KCC has only money to pay interests, then they get to collect everything instead of giving 25% of the earnings to Gecamine. At this point it doesn't matter how much Cobalt KCC is producing if it's barely solvent and everything has to go to interests, i.e. Glencore. Gecamine saw this coming a mile away and requested the dissolution of KCC after asking Glencore to recapitalize the debt (i.e. eliminate it, or finance it at a fairer rate) and getting ignored.
This was kind of a surprise to Katanga shareholders as well to to lean how much debt Glencore loaded KCC with. Glencore has a majority stake in KCC through their 80% ownership of Katanga and could thus do it with impunity. Everyone else besides them lost out on this. This is still a major conflict of interest in the ownership structure of Katanga. Minority shareholders of Katanga have shares in a company that's not looking out for them, but for Glencore.
Now we get to the deal. Gecamine got what they wanted. Katanga (or rather Glencore) agreed to transfer 5.6 billions of KCC debt directly to Katanga. They do this with a debt to equity conversion. New shares of KCC are issued to Katanga that then take on the debt. This is just an accounting trick though because Gecamine's stake is not diluted as they maintain their 25%, with a KCC now free of 5.6 billions of debt. There were some very small external shareholders of KCC (< 1%) that got effectively diluted to nothing, but it's completely negligigle. The end result is that Katanga (and also you minority shareholders) got left with this toxic bag of Glencore debt, but with nothing to show for it except an end to legal proceedings. Katanga also got hit with a bunch of one time payments, but those are mostly negligible next to 5.6 billions in debt at an interest rate of 10%. The rest of the KCC debt (around 3 billions) got refinanced at a lower rate, and Glencore agreed contractually not to further load KCC with new debt without Gecamine's consent.
This is what the market is digesting. Now you get to make your play.