Lonmin - How Cyril never paid back the money

Lonmin’s BEE deal with deputy president Cyril Ramaphosa’s Shanduka group, which was struck in 2010, is in jeopardy as Shanduka has failed to meet the five-year deadline to repay its loan. 

In fact, Shanduka has not repaid any of the £200m (just over $300m or R2.3bn at the time) loan despite receiving, in addition to that loan, ordinary dividends, advanced dividends and a preference share subscription, together totalling around R1.25bn during the five years.

At the September 2014 year-end, Shanduka owed Lonmin $417m (R4.58bn at exchange rates at the time, but R5.5bn now, due to the rand’s devaluation).

At the time of going to print, the heavily indebted Lonmin, which announced in July that it would cut 6 000 jobs in an attempt to cut costs and preserve cash, had a market capitalisation of R3.4bn.

It announced on 21 October that it will raise $400m (R5.36bn) in new equity in November, also dwarfing its current market capitalisation, and agreed to new debt facilities totalling $370m that mature in 2020.This is Lonmin’s second capital-raising in three years.

It went cap in hand to shareholders for a $817m bailout in December 2012 to strengthen its balance sheet following the deadly strike at Marikana. 

The Shanduka debt arises from a deal in mid-2010 where Shanduka acquired 50.03% of Incwala Resources – which owns 18% of Western Platinum, 18% of Eastern Platinum and 26% of Akanani – giving Shanduka an effective 9% stake in Lonmin. 

Shanduka’s investment was facilitated by the R2.3bn loan raised by Lonmin – and a R300m equity injection by Shanduka. 

Since then, Lonmin has made several dividend payments, advanced dividend payments and loans both to Shanduka and Incwala. Shanduka has not repaid any of the money to date, while Lonmin has recorded an $80m impairment on the loan so far.

There may be more when it releases 2015 financials on 9 November. The advanced dividends were paid in years in which Lonmin did not declare dividends, presumably to facilitate the payment of interest and the repayment of the loan.

Lonmin spokesperson Sue Vey confirmed that advanced dividends paid to Incwala have been R1.13bn to date, including R228m in the 2015 financial year. She also confirmed that no other shareholder has been given advanced dividends. 

The loans to Shanduka to date include the £200m (R2.3bn) original loan in 2010 and a R175.5m preference share subscription by Lonmin in Lexshell 806 in 2011.

Loans to Incwala of R510m include R80m in 2011, R110m in September 2013, R160m in March 2014 and R160m to service its funding requirements in 2013. 

This is an excerpt of an article originally published in the 29 October 2015 edition of finweek. Buy and download the magazine here.

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