-- any and all of AAH's outstanding US$450,000,000 8.00% Senior Notes due 2011 (the "AAH Notes");
-- any and all of AAI's outstanding US$355,000,000 12.00% Senior PIK Notes due 2012 and AAI's outstanding US$180,000,000 14.00% Senior PIK Notes due 2012 (together, the "PIK Notes") as well as 1,706,987 Warrants originally issued with the PIK Notes ("Warrants"); and
-- solicitation of consents to a one-time waiver of, and amendments to, certain of the provisions of, the indentures, as amended and supplemented, under which the AAH Notes and the PIK Notes were issued.
We expect to offer up to US$275 per US$1,000 principal amount for AAH Notes and up to US$135 per US$1,000 principal amount of PIK Notes including Warrants.The AAH Notes and the PIK Notes are listed on the Singapore Exchange Securities Trading Limited.
Currently, there are US$450,000,000 principal amount of AAH Notes outstanding and US$727,529,000 principal amount of PIK Notes outstanding (which amount includes PIK Notes issued as payment-in-kind for interest).We expect to commence the Tender Offer and Consent Solicitation next week.
Background
Due largely to adverse global macroeconomic conditions, we have experienced declining revenues and cash flow as well as increasing pressure on available working capital facilities at a time when we need increased financing to enable our aluminum rolled products manufacturing facility to begin commercial production. The deteriorating conditions have adversely affected our business in various ways, including:
-- a decline of approximately 20% in sales volume for the six months ended December 31, 2008 as compared to the same period in 2007;
-- higher cost of sales per tonne;
-- increased overall expenses as a result of preparing our aluminum rolled products manufacturing facility for commercial production;
-- significantly longer accounts receivable days as many of our customers have also experienced constraints on working capital; and
-- increasing difficulties maintaining sufficient sources of working capital financing.
AAI's consolidated EBITDA for the year ended June 30, 2008 was HK$1,121.0 million. For the six months ended December 31, 2008, principally as a result of market conditions, our sales volumes declined by approximately 20%, while our cost of sales per tonne increased by approximately 29% and our cost
structure overall increased significantly as we continued to prepare our aluminum rolled products manufacturing facility for commercial production.
These figures are compared to the six months ended December 31, 2007. As a result of these and other factors, our EBITDA declined significantly for the six months ended December 31, 2008. We expect our EBITDA will continue to decline unless market conditions improve significantly, we are able to access
sufficient working capital and we are able to commence commercial production at our aluminum rolled products manufacturing facility. Maintaining sufficient EBITDA is crucial to ensure we are able to finance our day-to-day operations, service our aluminum rolled products expansion project and service our debt.
Although cash generated from our operations and other sources has decreased, we continue to require substantial capital. As financial institutions tighten their lending policies, we have not been able to increase our credit facilities consistent with the expansion of our operations as we have done in past years, and expect such situation to continue to worsen if we cannot successfully restructure or refinance our existing indebtedness. Moreover, the commissioning of our aluminum rolled products manufacturing facility has been delayed for several months, which in turn has further contracted our working capital due to our inability to commence production to generate cash from operations.
The Group incurred significant additional indebtedness through the issuance of the PIK Notes in May 2006 to fund the privatization of Asia Aluminum Holdings Limited. As of December 31, 2008, AAH's consolidated total liabilities were HK$12,390.5 million and total borrowings (including bank and other loans, trust receipt loans and import loans and the AAH Notes) were HK$8,287.4 million. As of the same date, AAI's consolidated total liabilities were HK$17,737.3 million and total borrowings (including bank and other loans,
trust receipt loans and import loans, the AAH Notes and the PIK Notes) were HK$14,094.5 million.
Proposed Restructuring
To address this situation, we have been exploring, for several months, various options to restructure our balance sheet in an attempt to strengthen our overall capital and working capital position. Unfortunately, other options have not progressed on the timetable necessary to meet our working capital needs and strengthen our financial position. As such, our management has prepared the Tender Offer and Consent Solicitation to restructure our existing indebtedness. We have also pursued or are pursuing, the following related initiatives:
-- we have received an indication of general support from a local PRC Municipal Government to assist us with obtaining adequate financing for the Tender Offer and Consent Solicitation and for our operations;
-- we have received letters of intent from two of our major existing PRC bank creditors regarding a preliminary agreement to make loans to refinance our existing indebtedness and to provide us with additional
financing which may increase our total indebtedness up to RMB6.0 billion, provided that we successfully complete the Tender Offer and Consent Solicitation and satisfy other conditions; and
-- we have been maintaining regular discussions with our non-PRC bank and trade creditors regarding the renewal and extension of existing credit facilities.
Completion of the Tender Offer and Consent Solicitation is crucial to our restructuring efforts and accordingly, our ability to continue as an operating company. If we fail to consummate the Tender Offer and Consent Solicitation, our bank creditors may demand immediate repayment of all outstanding amounts
and refuse to approve further drawdowns under our existing working capital facilities. Without access to sufficient working capital financing, we project that our revenue and cash generated from operations would be insufficient to fund expected operating expenses and required capital expenditures, including commencing commercial production at our aluminum rolled products manufacturing facility, as well as to service our existing indebtedness.
Our Chairman, Mr. Kwong Wui Chun, has been making plans to use his equity interest in AAI to support our restructuring efforts. In consideration for a local Municipal Government's support for our restructuring, Mr. Kwong has been in discussions with the government with respect to the transfer of 25.0% of AAI's equity owned by him to an entity controlled by the government upon the completion of our restructuring. In addition, we expect Mr. Kwong to transfer an additional 28.4% of AAI's equity to an escrow account following the completion of the Tender Offer and Consent Solicitation: (i) up to 10.0% of AAI's equity for the benefit of management and employees (excluding Mr. Kwong) to encourage their continuing services to us, subject to certain performance thresholds; and (ii) the remainder to be reserved for subsequent private or public sale to one or more equity investors, which proceeds are expected to be used to reduce our indebtedness other than any debt owed to Mr. Kwong. We also expect Mr. Kwong to transfer an additional 14.0% of AAI's equity to OK Spring Roll Limited Partnership, an entity owned by a three-member consortium led by ORIX Corporation ("OK Spring Roll"), in exchange for OK Spring Roll's existing 25.01% equity interest in one of our subsidiaries following the completion of the Tender Offer and Consent Solicitation. Upon completion of the Tender Offer
and Consent Solicitation, and simultaneous closing of the transactions described above, we anticipate Mr. Kwong's equity ownership in AAI will be 30.0%, representing the minimum level required under the Indentures and certain loan facilities to avoid triggering a "Change of Control" and representing a significant decrease from his current equity ownership position. Further, the shareholder loan of approximately US$61.2 million granted by Mr. Kwong to AAI in connection with AAH's privatization in May 2006 will be cancelled upon the completion of the Tender Offer and Consent Solicitation and the transactions described above.
Forward-looking Statements
This press release includes "forward-looking statements" within the meaning of securities laws of applicable jurisdictions. Forward-looking statements can generally be identified by the use of forward-looking words such as "may," "will," "expect," "intend," "plan," "estimate," "anticipate," "believe," or other similar words, and include statements regarding certain plans, strategies and objectives of management and expected financial performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are outside the control of us and our officers, employees, agents or associates, including, but not limited to, the competitive markets for the provision of aluminum products; general political and economic conditions, including those related to the PRC; cost and availability of
financing; our ability to meet debt and other obligations when due; trends in the aluminum industry; our ability to commence commercial production of our aluminum rolled products manufacturing facility; regulations and restrictions; and governmental approval processes. Actual results, performance or achievements may vary materially from any projections and forward-looking statements and the assumptions on which those statements are based. In addition, forward-looking statements in this press release, including those
statements relating to the Tender Offer and Consent Solicitation, are based on current expectations. Actual events and results could vary materially from the description contained herein due to many factors including changes in the market and prices for the AAH Notes, the PIK Notes and the Warrants; changes in
our business and financial condition; changes in the debt markets in general; and the occurrence of other events that may trigger a condition permitting termination or amendment of the Tender Offer and Consent Solicitation. You are cautioned not to place undue reliance on forward-looking statements. We assume
no obligation to update such information.
Contact:
Jenny Lee or Teresa Cheng
t6.communications limited
Tel: +852-2511-8388
Fax: +852-2511-8238
Email: [email protected]
SOURCE Asia Aluminum Holdings Limited
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