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Kazakhmys shows its mettle

In February last year, Kazakh mining and metals company Kazakhmys signed a US$2.1bn pre-export finance debt facility. This was the borrower’s debut in the international syndicated loan market, and certainly illustrates the resilience of structured commodity trade finance in the face of the current competition for liquidity.

The five-year facility, which met with a significant 50% oversubscription by the 19 banks involved, is to be used for general corporate purposes and for financing future acquisitions. This includes the proposed acquisition of the Ekibastuz coal-fired power plant and the Maikuben West coal mine. Ekibastuz is a strategic asset in the Central Asian power market. The expected market growth in demand for electricity in Kazakhstan, together with the tight reserve margins, makes the electricity market an attractive growth platform for Kazakhmys.

This was the first opportunity for international debt investors to participate in Kazakhmys’ credit, and as such enables the company to enhance their financial flexibility by diversifying their sources of funding.

The transaction was managed by Deutsche Bank and the mandated lead arrangers and bookrunners were ABN Amro, Barclays, BNP Paribas, Calyon, Commerzbank, Deutsche Bank, Dresdner Kleinwort, ING Wholesale Banking, Natixis, Société Générale, Sumitomo Mitsui Banking Corporation, Bank of Tokyo-Mitsubishi UFJ and WestLB. The arrangers were Bank of China, Fortis, JP Morgan, Merrill Lynch and Rabobank. The co-arranger was ICBC London. The deal carries a margin of 125 basis points  over Libor.

“One of the main reasons for the success of this deal was that the client made a good judgment of the changing market conditions and timely adopted its financing strategy,” says Juultje van der Wijk, head of metals and mining  at ING Wholesale Banking. “It was a huge success that the company got support from so many banks, including large commitments from Asian banks. Other success factors were the virtually zero leverage of the company at the time, the UK listing that ensures good governance, and the fundamental positive outlook for the copper market.”

Law firm Linklaters led the transaction process, acting for Kazakhmys. According to the firm, the transaction was Kazakhmys’ debut financing since its LSE listing in October 2005.

“We were delighted to have taken the lead role in Kazakhmys’ first deal as a PLC, and were encouraged by the overwhelmingly positive response from the market,” says Kris Van Broekhoven, director of structured commodity trade finance at Deutsche Bank. “The deal involved some innovative structuring as it was the first time pre-export financing was used to finance the acquisition of a target which was unknown to the lenders at the time of closing.”

Philippe Landry, managing director and head of the Russia and CIS department within the natural resources and energy financing group at Société Générale, comments that appetite for this transaction with Kazakhmys was very strong. “Kazakhmys succeeded in raising US$1.1bn more than the US$2.1bn initially sought, demonstrating that investors were not shy in joining a transaction for this unrated Kazakh copper producer. Despite tough market conditions, syndication – from the senior phase until the close of syndication – was completed in a mere 2.5 months. Increased structuring as offered by pre-export finance also proved to be very helpful.”

Employing 66,000 people worldwide, and with operations in Kazakhstan, Germany and the UK, Kazakhmys is the largest copper producer in Kazakhstan and one of the top 10 worldwide. Fully integrated production makes it one of the lowest cost producers in the world. The company operates 20 open-pit and underground mines, a zinc plant and two smelting and refining complexes. The group also owns coal mines and power plants that supply sufficient energy for its operations.

Deal Information

Borrower: Kazakhmys
Amount: US$2.1bn
Mandated lead arrangers: ABN Amro; Bank of Tokyo-Mitsubishi UFJ (BTMU); Barclays; BNP Paribas; Calyon; Commerzbank; Deutsche Bank; Dresdner Kleinwort; ING Wholesale Banking; Natixis; Société Générale; CIB; Sumitomo Mitsui Banking Corporation (SMBC); WestLB
Additional lenders: Bank of China; Fortis Bank; JP Morgan; Merrill Lynch; Rabobank; ICBC
Law firms: Linklaters and Lovells
Tenor: 5 years with 12-month grace period
Margin: 1.25%
Date signed: February 2008