Creditors object to Samarcos plans for restructuring
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Creditors object to Samarco’s planned restructuring 

20 Jul 2021 (Last Updated July 22nd, 2021 15:41)

Creditors of Samarco Mineracao SA have objected to restructuring plans set out by the bankrupt miner, branding them as “absurd”.

Creditors object to Samarco’s planned restructuring 
Credit: BHP

Creditors of Samarco Mineracao SA have objected to restructuring plans set out by the bankrupt miner. Brazilian miner Samarco Mineracao SA, a joint iron ore venture between Vale SA and BHP Group Ltd, had planned to raise $2bn in capital to exit bankruptcy protection.

The company had entered bankruptcy protection after the 2015 breach of the Fundão tailings dam at the Germano mining complex, which killed 19 and resulted in widescale pollution of one of Brazil’s largest river basins.

Consequently , Samarco was saddled with $10bn of borrowings, leading them to file for judicial reorganisation  in April, which is akin to bankruptcy protection in Brazil. The prospective funds would be raised through a competitive process, around 30 days after a Brazilian judge approves the plan for restructuring, with the proceeds expected to fund its operations between 2022 and 2027.

Creditors of Samarco, which include London-listed asset manager Ashmore and US group Canyon Partners, have responded negatively to the proposed restructuring. In court documents released on 15 July, they branded the proposed restructuring as “absurd” and merely a means to protect Samarco’s shareholders, Vale and BHP, from obligations arising from the November 2015 disaster.

The plan stipulates an option to its creditors of either converting the outstanding debt into class B shares or a payout of just 15%  of the face value of the notes in 2041. Lawyers representing the creditors have hit back, dismissing the offer of taking an 85% cut on their debts as unacceptable, arguing instead that the two joint venture partners should only receive any repayments from Samarco after its other debts are settled.

“It is unacceptable that a restructuring plan of a company controlled by the world’s biggest miners outlines an outright (and illegal) debt forgiveness to create value for its multimillionaire shareholders, which are also responsible for Brazil’s biggest environmental disaster,” creditors said in the court document.

In response, Samarco has accused creditors of an “unfortunate attempt” to disrupt the plan, which  they argue will act as a safeguard for thousands of jobs. Samarco representatives said in response to the court filing: “This is one more unfortunate attempt from some financial creditors to disrupt the judicial reorganisation process and confuse public opinion.”

Ivan Apsan, vice-president of legal and corporate affairs at BHP Brazil, described Samarco’s terms as “fair and reasonable”.  He said:  “[They] present the best solution that enables Samarco to continue operating, contributing to the local economy of Minas Gerais and Espírito Santo and funding the Renova Foundation.”

The company has also shown an openness to negotiate, “despite the numerous disputes and accusations” by financial creditors. It has argued that “the  plan presented was prepared in accordance with the current financial capacity of the company”.

Since resuming operations in December 2020, Samarco’s defaulted bonds have recovered much of their value. A result of the booming iron ore market, currently, trading at more than $ 215 a tonne. The bonds are now trading at almost 80 cents on the dollar, up from less than 40 cents in early 2020 as the pandemic erupted, offering some hope of growth for the joint venture.

However, it was   on Monday that a definitive settlement with Samarco and  its owners  for the damage caused by a burst tailings dam in 2015 could reach 100 billion reais ($19.06bn).

The settlement piles further financial pressure on the beleaguered organisation, with the estimate nearly four times higher than an initial deal struck with the mining companies in 2016. As a result, Samarco’s creditors will likely continue to be wary over the prospective restructuring plans, as the true extent of the settlement comes into focus.