NC KMG Proposals for KMG EP
NC KMG's advisers informed the advisers of KMG EP over the weekend that the current Proposals are certain and final, and will not be revised further.
Certainty of the Purchase Offer associated with the Proposals
Contrary to the opinion of the EP INEDs, there is no uncertainty over the offer to purchase Common Shares and Preferred Shares of KMG EP listed on the Kazakhstan Stock Exchange and GDRs of KMG EP listed on the London Stock Exchange (the "Purchase Offer") associated with the Proposals. The Purchase Offer is conditional only on the acceptance by Minority Shareholders of the proposed changes to the Charter and the Relationship Agreement.
The force majeure provision, which is customary for offers of this nature, was discussed with the EP INEDs' advisers before publication and amended in line with their comments. It is explicitly designed only to cover events outside NC KMG's control that make it impossible for the Purchase Offer to be completed, such as closure of the markets or war. Access to funding is specifically excluded from the force majeure definition. The force majeure definition is reproduced in full in the notes below for the convenience of readers.
In the extremely unlikely event that the force majeure provision was invoked, the changes to the Relationship Agreement and Charter would not take effect until the Purchase Offer was completed, so Minority Shareholders are fully protected in all circumstances.
2014 offer
The EP INEDs also refer to the withdrawal of a full buyout offer at $18.50 per GDR by NC KMG made in 2014. NC KMG was prepared to honour these commitments for six months (during which time they were not put to shareholders by the EP INEDs) while international oil prices halved. The offer was ultimately withdrawn after failure to reach agreement with the EP INEDs on price.
Performance of KMG EP
NC KMG also notes the comments of the EP INEDs on 18 July regarding the Statement of Operating Profit for the five months ended 31 May 2016, and the assertion by the EP INEDs that the Revised Circular may cause confusion among Minority Shareholders concerning the current profitability of KMG EP's operations.
NC KMG notes that the operating results do not appear to include any income tax expense for the period and, from a free cashflow perspective, appear to ignore expenditures on maintenance capital expenditures at both Embamunaigas JSC and Ozenmunaigas JSC. Furthermore the released information does not appear to include the performance of the Joint Ventures and Associates, so it remains unclear whether KMG EP is generating positive cashflows.
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