Trafigura to take control of Europe’s biggest zinc smelter

Bloomberg

Trafigura Group Ltd. will take control of Nyrstar NV, Europe’s biggest zinc smelter, as part of a deal to restructure the struggling company’s debt and steer it away from bankruptcy.
Under the agreement, Trafigura — Nyrstar’s main shareholder as well as a top supplier, customer and financier — offered a package of its own debt securities to Nyrstar’s creditors in exchange for them writing off debt.
The deal will stretch Trafigura’s balance sheet, which is already heavy with debt, and force the commodities trader to double down on an investment in a company that’s on the brink of collapse. It would also see Nyrstar’s creditors, many of them distressed debt specialists and hedge funds, become Trafigura’s investors.
“The proposed debt restructuring is, we believe, the best possible solution for all stakeholders despite significant and painful losses incurred,” Trafigura Chief Executive Officer Jeremy Weir said in statement. “Nyrstar has been faced with substantial financial and operational difficulties over the last few years, but it also has very solid industrial and mining operations on which we can build a stable future.”
Trafigura needs 75 percent of creditors in each class to agree to the deal by April 29 for it to be valid.
Under the terms, Nyrstar’s operating companies would be sold to a new UK-based entity, in which Trafigura will hold a 98 percent stake. Nyrstar will retain the remaining 2 percent holding, meaning that existing shareholders will be almost entirely wiped out.
“Considering the substantial priority liabilities ranking ahead of bond holders we think this is a decent proposal,” said Felix Fischer, global head of research at Lucror Analytics in Singapore. “However, there is execution risk considering that you need three-quarter of each creditor class to approve the deal.”
The deal may need to be approved by a court in the UK, where the new company, controlled by the commodity trader, will be based.
Nyrstar’s 500 million euros ($565 million) of bonds due March 2024 gained 2 cents on the euro to 42 cents on Monday, according to data compiled by Bloomberg. The shares, which had been suspended since last Monday, resumed trading and fell to 31 euro cents from 65 cents.
SMELTER LOSSES
Nyrstar has been working to restructure its debts since October, after an unexpected profit warning sparked a selloff in the company’s shares and bonds. The news fueled doubts about its ability to pay down more than 1 billion euros in borrowings racked up during an ill-fated foray into mining around the start of the decade.
The deal to stave off bankruptcy was struck between Nyrstar, Trafigura, and a group of creditors with exposure to the company’s bonds, working capital loans and production-financing arrangements known as prepay deals.
The deal is a significant one for Trafigura. While it does already operate mining assets in Spain, adding Nyrstar will markedly increase the company’s headcount and industrial operating costs, as well as giving it more exposure to volatile zinc and lead prices.