2023-07-10 18:12:22
Gold mining company Polyus plans to buy back shares from investors with a premium of 32.56% on a first-come, first-served basis. Polyus and experts explained the purpose of the deal and whether private investors would be able to sell the shares
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What happened: Polyus plans to buy up to 30% of its shares from current owners
Gold miner Polyus July 10 announced on the repurchase of up to 40.8 million of its own shares, which is 29.99% of total volume company papers. Only those shareholders who owned securities at the end of the trading day on July 7, 2023 will be able to offer their shares for redemption.
The company plans to use the repurchased securities “for the financial and commercial purposes of Polyus and its subsidiaries”: to secure mergers and acquisitions (M&A), possible placements on the capital market, as well as financing long-term development projects involving new investors.
“The repurchased shares will be able to become a tool for various M&A transactions and project financing, which will cost the company less than raising a loan. At the same time, the company would like to continue developing its public history and maintain liquidity in shares,” the company’s press service confirmed to RBC Investments in response to a request for details of the transaction.
Polyus shares soar nearly 15% following buyout program approved
Briefly regarding the Polyus offer:
The buyer is a subsidiary of Polyus, JSC Polyus Krasnoyarsk, wholly owned by the issuer; The purchase price will be ₽14.2 thousand, which is 32.56% higher than the closing level on July 7, 2023 (₽10,712.5), that is, on the day when the period for acquiring shares for sale under the tender offer ended. As noted in the company, the price was set taking into account the opinion of an “independent appraiser”;
total amount the buyout may amount to ₽579.4 billion; Independent Registrar Company R.O.S.T. will keep records of applications and their order. Applications can only be submitted using electronic queue coupons during NRK-R.O.S.T. working hours, that is, from Monday to Thursday from 10:00 to 16:30 Moscow time, and on Friday – from 10:00 to 15:30 Moscow time The offer applies to direct shareholders who owned securities as of the end of the trading day on July 7, 2023. Shares acquired later are not accepted for redemption. Also, the company does not intend to buy depository receipts for Polyus shares and securities of non-resident shareholders due to existing government and sanctions restrictions; If more than the maximum number of shares are properly submitted for redemption, the company will purchase as many of the offered securities as the program limit allows – in order of priority; The deadline for submitting applications for the buyback of shares is 17:00 Moscow time on August 9, 2023.
On the news of the offer to buy back the shares of the Polyus paper at the moment grew by almost 15% to ₽12,308.5. However, then the growth began to decline – trading in the main session on July 10 closed at ₽10,995 per security.
Analysts at the Sinara investment bank believe that a substantial premium in the buyback price should support Polyus shares until shareholders reach the limit on the volume of orders for sale: “We confirm the Buy rating and the target price of ₽13.5 thousand per share”.
However, the repurchase of shares does not take place on the open market, which limits the degree of influence of the transaction on market quotes, reminded FG Finam in the company. “Such a deal would have a very limited impact on market quotes. It’s a pity, of course, because 30 percent premiums don’t roll around on the road. Therefore, apparently, they pay it only to their own,” Alexey Kalachev, an analyst at FG Finam, is skeptical.
Why is the ransom price so high?
“The company believes that gold prices and increased production will contribute to financial stability in the near future. At the same time, the company’s shares remain undervalued. In such a situation, management considered a buyout to be the optimal solution for Polyus,” the company’s press service explained to RBC Investments.
Polyus’ offer to buy out at a price significantly higher than the market price may signal that the company sees a significant undervaluation of its shares, but if the majority shareholders exit their positions, we can talk regarding observing, first of all, their interests, said the head of the market analysis department “Opening Investments” Alexey Pavlov. According to him, the main purpose of the transaction is to allow its largest shareholders to partially fix profits.
Polyus announced plans to delist receipts from the LSE on July 25
Who will benefit from a buyback of Polyus shares at a premium to the market?
Polyus stressed that the buyback of shares from their owners will take place within the specified volume in the order of priority for the submission of applications for the transaction, regardless of the size of the first applications submitted.
Analysts at Sinara Bank also pointed out that the buyback quota might be exhausted much earlier than the last day of the program and recommended that shareholders apply as soon as possible, “preferably in the coming days”, as the largest shareholders may also submit part of their shares for buyback . In this case, the volume of buyouts for minority shareholders is likely to be significantly reduced, experts confirmed.
However, the press service of Polyus added that not all holders of large blocks of shares will participate in the buyout. “At the moment, there is no exact information on the volume of buyouts from the majority shareholders. As far as we know, one of the major non-commercial shareholders does not plan to participate in the buyout procedure. We have simplified the application mechanism as much as possible in the interests of private investors,” the Polyus press service said.
As of May 2022, 46.35% of the shares of Polyus belonged to the Islamic Organizations Support Fund, 29.99% – Akropol Group LLC (beneficiary Akhmet Palankoev), 22.25% were in free float.
Analysts interviewed by RBC Investments said that the main beneficiaries of the deal might be the majority shareholders, since the program does not provide for a proportional buyback of shares from all applicants.
Thus, Alexey Kalachev, an analyst at FG Finam, is sure that the company’s offer is not intended for minority shareholders: “This kind of “buyback” will not be related to market share prices. It aims to buy back a specific number of shares for a specific price and from a specific seller. That is, this is not a buyout from the market and not even a buyout from everyone in proportion to the submitted bids. No, this is some kind of intra-corporate deal, only issued in the form of a buyback.
The Finam FG analyst named three arguments in support of his opinion regarding the orientation of the Polyus offer to the majority shareholders:
No buyout from the market, bids are only accepted from those who were on the register of holders as of the close of trading on July 7, and the high buyout price will not support the current quotes of the company; There is no proportional buyout, only in the order of the submitted applications, Kalachev pointed out: “You can be sure that the pool of applications in the required amount was formed, maybe even agreed and formalized in advance”; The expert of FG “Finam” also pointed out that 29.99% of the shares of “Polyus” is exactly the number of shares that was transferred April 4, 2022 from the holding of the Kerimov family of the MKAO Wandle Holdings Limited to the limited liability company Akropol Group Akhmet Palankoev.
“Already then there were questions regarding where Palankoev got the amount sufficient for the purchase. Most likely, these shares were simply “parked” to take Polyus out of the risk of sanctions, following the Kerimovs and their business structures were already under sanctions. Now that Polyus itself is already included in the SDN list of the US Treasury, the need for these tricks has simply disappeared, ”Kalachev believes.
He also suggested that the buyback of shares to the balance of Polyus’s structures means that they might be transferred to the Kerimov family, who previously owned them, in the future, or used as funds for acquiring assets. “Here immediately emerges the problem of the Polymetal group, which may soon have to sell its Russian mining assets to someone. I would not rule out that some schemes are possible to sell them to Polyus with the participation of shares. Perhaps that is why Polymetal shares are adding more than 3% today, ”admitted Kalachev.
Schedule of events within the tender offer
“Polyus” provided in the tender offer a detailed schedule of process share repurchases, but dates and times are subject to change. Service is carried out during the working hours of NRK-R.O.S.T. only by e-tickets. Ticket issuance times: Monday-Thursday: 10:00 to 16:30, Friday: 10:00 to 15:30, Saturday and Sunday: days off.
July 10, 2023
Share buyback announcement. From 14:00 Moscow time on the same day, the buyback program began.
17:00 Moscow time August 9, 2023
Deadline for submitting applications to buy back shares from current holders. By the end of the working day, the company will announce the results of the submission of applications.
What is a buyback? Why do companies buy back their shares from the stock exchange?
What will happen to the company’s debts and dividends?
“Attracting debt financing will not affect operations and the fundamental characteristics of the company’s business. Polyus has a low level of debt and a significant amount of cash in its accounts,” the company’s press service said.
The total amount of the buyout will amount to ₽579.4 billion, the company will finance part of the buyout by raising debt, according to experts interviewed by RBC Investments. Veles Capital analyst Sergei Zhitelev predicts that by the end of the first half of the year, the company’s net debt will grow 4.7 times to $8 billion, while the net debt/EBITDA ratio will grow to 2.54X.
“According to our estimates, with such a debt load, the company will focus on debt repayment and will not pay dividends this year and, possibly, in the first half of 2024,” Zhitelev said. According to Dmitry Puchkarev, an expert on the stock market at BCS Mir Investments, the growth in the debt burden may become a deterrent for paying dividends, but everything will depend on the actual volume of the buyback.
“If the buyback is implemented in full, Polyus’s debt burden will increase significantly. I think that in this case, the company may temporarily take a dividend pause, ”added Alexey Pavlov, an analyst at Otkritie Investments.
Author: Ksenia Kotchenko.
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