Brazil miner Samarco faces crunch creditor vote as standoff looms

By Tatiana Bautzer and Marta Nogueira

SAO PAULO/RIO DE JANEIRO, Feb 23 (Reuters) – Samarco Mineracao faces a possible creditor standoff at meetings starting on Wednesday to vote on debt restructuring proposals which would allow the Brazilian iron ore miner to exit bankruptcy protection.

Creditors of the iron ore joint venture between Vale SA and BHP Group are expected to vote on the latest proposals to restructure some $5 billion in financial debt.

But the two sides remain far apart and if the meeting lacks a quorum, a final vote will be held on March 10, the day before the current deadline for Samarco's restructuring.

Samarco faces uncertainty on another front too as federal and state authorities have been in talks with it since last year on potential reparations related to a deadly dam burst in 2015, while state prosecutors in Minas Gerais said they expect to begin discussing total amounts by next month.

Documents released by the court-appointed administrators of Samarco's bankruptcy proceedings show that its creditors have demanded payment of 100% of the debt due, with accrued interest in new bonds guaranteed by the shareholders Vale and BHP.

Samarco, for its part, has proposed in December a 75% discount to bondholders, with the payment in bonds that will mature in 2041. Another alternative would be to convert the debt into equity, with creditors reaching a stake above 15%.

Advisors to bondholders, who requested anonymity, say their clients will vote down Samarco's current proposal.

An ad hoc creditors group on Tuesday proposed that former Vale and Nexa Resources executive Tito Martins should become chairman in "a fundamental step" towards a "New Samarco".

Simon Duncombe, vice-president for Brazil Non-Operated Joint Ventures at BHP, said this proposal will not change the situation, adding that while creditors are likely to demand the appointment of new executives, Samarco "doesn't have a management problem".

Earlier this month, Vale signed a 20-year production agreement with Samarco that is expected to add $5.1 billion in net revenue by 2042 and bring forward its iron ore output goal.

If its creditors decide to reject Samarco's proposal, Brazilain law allows them to put forward alternative plans.

In that case, Duncombe said Vale and BHP would demand the right to vote in an assembly of creditors, which include asset managers York, Ashmore, Canyon, Maple Rock and Solus.

Samarco's bondholders are represented by law firms Padis Mattar Advogados, Ferro, Castro Neves (FCDG) and Davis Polk and advised by investment bank Houlihan Lokey.

Samarco is represented by JPMorgan Chase, Vale by Moelis and BHP by Rothschild. (Reporting by Tatiana Bautzer in Sao Paulo and Marta Nogueira in Rio de Janeiro; Editing by Alexander Smith)

By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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