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Johannesburg - AngloGold Ashanti [JSE:ANG] has pulled the plug on its plan to spin off its global operations into a new London-listed company and seek a $2.1bn rights issue after meeting resistance from shareholders, it said on Monday.
The gold producer last week unveiled its intention to split its South African mines from international assets, mirroring moves by other producers to reduce exposure to a country hit by rising labour costs and policy instability.
AngloGold had also planned a $2.1bn rights issue to pare its net debt level of $3bn, which the company's chief executive has called "unsustainably high".
Analysts said splitting the Johannesburg-based company's domestic operations from the rest made sense given South Africa's tarnished reputation as a destination for mining investment.
But the size of the rights issue was just too big.
"A number of shareholders have expressed concerns about certain aspects of the proposed transactions," the company said in a statement announcing the dramatic about-turn.
"AngloGold Ashanti has, therefore, decided not to proceed with the restructuring and capital raising."
Shareholder's concerns
Following the announcement of the proposed corporate restructuring and capital raising on September 10 2014, AngloGold Ashanti has, as planned, engaged extensively with shareholders holding almost two-thirds of its issued share capital, to solicit feedback on these proposals.
The proposed restructuring would create a London-listed entity to house the company's international assets with the South African assets remaining at AngloGold Ashanti, thus creating two simpler and more focused entities.
There has been broad support for the strategic logic of the
restructuring, but a number of shareholders have expressed concerns
about certain aspects of the proposed transactions, in particular the
quantum of the equity capital raising needed to enable the restructuring
to be implemented in accordance with regulatory and other requirements.
Billionaire hedge-fund manager John Paulson had been one of the most outspoken critics of AngloGold's abortive plan, saying the rights issue would be counterproductive for shareholders.
“Paulson will not vote its shares in favour of AngloGold Ashanti's proposal to conduct a highly dilutive $2.1bn rights issue to support a partial spin-off of its international assets," his hedge fund Paulson & Co, which owns about 6.6% of AngloGold Ashanti, said in an emailed statement.
"While the separation of the company into an international business and a South African business makes strategic sense, the small amount of the spin-out, the likely holding company discount, and the highly dilutive equity offering would, on a net basis, destroy shareholder value.”
The company's decision to go back on its plan, after consulting two thirds of its shareholding base at the weekend, raises questions about how it intends to pare its debt.
Investec analysts suggested in a note that it should sell its share in the Kibali mine in the Democratic Republic of Congo to its joint venture partner and rival Randgold, to solve its debt issues and Randgold’s medium-term growth dilemma at the same time.
AngloGold net debt/Ebitda, a ratio used as a measure of leverage, is currently at around 1.73.
Its rival Gold Fields had a level of 0.68 when it implemented a de-merger in 2013 that gave life to South African gold producer Sibanye Gold [JSE:SGL].
'When you consider the amount of debt in AngloGold, having a rights issues makes sense to me. I think the main problem I had was that they did not give any details on the rights issue. Markets do not like uncertainty' said Michael Schroder, a fund manager at Old Mutual, which has a 1.7% stake in AngloGold, according to Reuters data.
Schroder said the fact that AngloGold intended to initially retain a 65% stake in the company it was planning to spin off and list in London was also important.
AngloGold Ashanti has, therefore, decided not to proceed with the restructuring and capital raising, as currently proposed.
The company will continue to evaluate all options to address debt levels and unlock value, taking into account the feedback from its shareholders and its business needs.
"People potentially interested in buying shares in the new company would have seen that the big parent might have wanted to offload the stock at some point, so there could have been an overhang of shares for years to come,” he said.
When Africa's top bullion producer unveiled the plan last week, its share price fell over 12% as investors gave the plan a big thumbs-down.
On Monday its share price leapt over 6% on the news that the proposal was being ditched, but remained more than 7% below its levels before the plan was announced.
