The breakdown of Qalaa’s debt settlement plans:
Earlier this week, Qalaa Holdings announced that its shareholders will be able to buy into the company’s debt (USD 131 mn in principal and about USD 100 mn in interest dues) using EGP — instead of transferring the money in USD overseas as previously announced — in exchange for EGX-listed shares in the firm at EGP 0.6/stock.
Let’s take a step back: why were the debts incurred?
Qalaa originally incurred USD 430 million of debt back in 2012 —- 230 million of which are owed to international banks and the remainder to local lenders — to finance its establishment of the Egyptian Refining Company, its USD multi-billion Mostorod oil refinery, and to finance expansion of its portfolio.
Then, the pandemic hit:
The company was expecting to rake in considerable profits from ERC in 2020, but after covid disruptions landed a hit to its financials, the company found that it would only be able to settle the debts to both global and local debtors by extending the loans over a ten year period from 2022, Qalaa’s co-founder and Hisham-El Khazindar told Rumble counterpart Ahmed Hammouda in an interview earlier this week.
The problem for global banks:
Two international investors — who have already written off their dues as bad debt provisions — refused to amend or extend their loan agreements with Qalaa or receive their debt payments in EGP given their own corporate restrictions.
How to solve the problem?
Main shareholders of Citadel Capital Partners — the entity through which Qalaa’s founders own equity in the company — will buy 23.5% of the debt via a special purpose vehicle company they set up called Qalaa Holding Restructuring I Ltd “QHRI.” QHRI has agreed with the international lenders to purchase Qalaa’s USD 230 million debt in exchange for USD 28.2 million. This means the company will be shelling out 20 cents on the USD to cover the principal of the loan.
What’s next?
Qalaa shareholders with stakes as of May 27th, as well as ones who sold stocks between the 7th and 9th of May, will have the option to buy into the remaining 76.5% of the debt in exchange for equity. Shareholders can buy debt in proportion to their holding in Qalaa: A shareholder with a 5% stake in the company will be allowed to purchase as much as 5% of the debt.
How will the debt for equity swap materialize?
Qalaa will enable the swap through a capital increase, issuing 2.4 billion shares at EGP 5 per share once that’s approved by the general assembly at the end of the May.
What impact will the debt settlement have?
“Total debt on the balance sheet will decline by about USD 1.1 billion this year as a combined result of this transaction, of USD 500 million in ERC cash repayments, and other transactions that were disclosed recently. It could free up some USD 88 million in interest expenses — money that falls straight to the bottom line. After this restructuring, Qalaa Holdings will be essentially without debt.,” Qalaa Chairman Ahmed Heikal told Enterprise in an interview.
Has anything been settled so far?
Qalaa wrote off USD 160 million in debts to four Egyptian banks via an in kind settlement that saw it offer up an 18% share in Qalaa subsidiary Taqa Arabia. The company also transferred the rights to a plot of land spanning 60000 square meters worth EGP 600 million to the banks, and paid them another EGP 600 million in cash. Another Egyptian bank (Arab African Bank) agreed to extend the tenor for the USD 40 million it is owed, and will wait till 2032`for repayment.
