Lenders set up showdown with BHP and Vale after rejecting Sarmaco debt restructuring plan
Arguments over Samarco’s debt restructuring plans will continue, after a key group of creditors rejected BHP and Vale’s latest proposal.
A key group of lenders to BHP and Vale’s infamous Samarco iron ore mine have rejected the company’s latest debt restructuring proposal, setting up a showdown with the two mining companies over the future of the iron ore operation.
Lenders that claim to represent at least two-thirds of Samarco’s $US5bn in external debt –Samarco is believed to owe another $US4.5bn to BHP and Vale – voted against the latest restructuring proposal on Tuesday Morning, saying they are prepared to use Brazil’s new corporate laws to try to put their own management team in place.
The plan put to creditors by Samarco would have seen unsecured creditors take a significant haircut on the debts they are owed – an earlier version of the proposal, circulated ahead a planned meeting on March 10, asked its lenders to take a 75 per cent haircut on the amount they are owed, through the issue of new bonds that mature in 2041.
Samarco has been struggling to find a way to restructure its debts since its restarted operations in late 2020. Debt holders have rejected successive offers from the iron ore miner, complaining their terms favour Samarco’s two shareholders ahead of the interests of creditors.
A spokesman for the self-styled Ad Hoc Group of Creditors (AHGC) – which includes asset managers and distressed debt investors York, Oaktree Ashmore, Canyon, Maple Rock and Solus – said the lender group would now propose a complete restructuring of the company to the Brazilian courts.
“The Plan will create a new corporate structure for Samarco, which will allow Samarco to grow again. Throughout Samarco‘s judicial reorganisation process, its shareholders, Vale and BHP Billiton, showed no interest in ramping up the company’s operations, presenting assumptions that constantly underestimated its real productive capacity,” the spokesman said.
“This conflict of interests is at the root of the problems with the plan that is now rejected, and it will only be overcome with the creation of an independent Samarco.”
Under the plan the AHGC will seek to seize control of Samarco and install a new board and management team, led by former Vale chief financial officer Tito Martins, that is independent of Vale and BHP.
Samarco’s return to production has been relatively slow, with the operation only running at about a quarter of its nameplate capacity. But Samarco could be producing up to 28 million tonnes of iron ore a year by 2030, and the lender group believes the appointment of Mr Martins and a fresh senior management team could allow the acceleration of that schedule.
Samarco’s debt crisis was triggered by the dam wall failure that shuttered its iron ore operations in 2015, with the ensuing tidal wave of mine tailings sweeping downstream, killing 19 people and doing untold damage to the environment.
Under Brazilian law, creditors now have 30 days to present an alternative plan.
A spokesman for BHP and Vale said the two Samarco shareholders were “ extremely disappointed” at the outcome of the meeting.
“This was in spite of the overwhelming approval by other creditor classes, including employees and small suppliers, that recognise the relevance of Samarco and its commitment to fulfilling its social purpose,” the spokesman said.
“BHP Brasil and Vale will challenge any plan that sees Samarco exit judicial reorganisation with an unsustainable balance sheet or where Samarco is expected to prioritise payments to the distressed debt investors, putting at risk the ability of Samarco to invest in its growth plans or ensure the long term sustainability of its relationships with employees and suppliers, as well as local and regional authorities.”