RusForest announces bond restructuring and rights, share issuances

By Caroline Salls

Pittsburgh, Dec. 12 - RusForest AB announced a transaction that includes a restructuring offer to bondholders, an underwritten rights issue and a directed issue to Russian strategic investor Nova Capital LLC or one of its affiliates, according to a company news release.

The company said it has been exploring strategic and financial alternatives. This process has included discussions with various shareholders, bondholders and potential industrial partners.

In light of prevailing market conditions, which are more challenging than previously expected and because of delays in RusForest's ongoing improvements to its sawmills, the company said it is in need of additional funds to cover working capital requirements over the next 12 months.

Proposal terms

RusForest said its board of directors intends to propose to bondholders to reduce the nominal amount and accrued interest of its bond by about 50% to SEK 263.75 million, to reduce the coupon to 0% and to extend the term of the bond to 2018.

Meanwhile, the board will propose to shareholders a new share issue by way of a set-off to bondholders amounting to roughly SEK 264 million, an SEK 86 million new share issue with preferential rights for existing shareholders and an SEK 100 million directed new share issue to Nova.

Based on a remaining bond debt of SEK 263.75 million after the bondholders' meeting, and if all bondholders accept the offer, the number of shares in RusForest will increase by 6,593,750,000 shares.

The company said existing shareholders would be entitled to six subscription rights for each existing share held. For one subscription right, one new share can be acquired at SEK 0.03 per share. At full subscription, this will add 2,874,230,820 new shares in RusForest.

Additionally, RusForest said a successful directed new share issue would add 3,350,000,000 new shares.

Based on a full debt-to-equity swap, a fully-subscribed rights issue and the directed new share issue, bondholders will hold about 50%, current shareholders will hold 25% and Nova will hold 25% of RusForest's outstanding shares after completion of the transaction.

Together, the company said these steps would strengthen RusForest's equity by about SEK 450 million.

The bondholders meeting is expected to be held on Jan. 25 and the extraordinary shareholders meeting will be held on Feb. 1.

Completion of the transactions is conditional upon a 90% acceptance level for the debt-to-equity swap.

Subscription agreements

RusForest said Vostok Nafta, the company's largest shareholder with 29.4% of the shares, has agreed to subscribe for its part of the rights issue, amounting to about SEK 25 million and, in addition, to guarantee the remaining part of the rights issue for roughly SEK 61 million.

This is subject to Vostok Nafta receiving an exemption from the mandatory offer rules and a 90% acceptance level in the debt-to-equity swap.

In addition, Nova has agreed to subscribe for all shares in the directed new share issue, also subject to a 90% acceptance level in the debt-to-equity swap.

"The debt restructuring and the two equity issues will address the company's short-term liquidity challenge and will enable us to develop the full potential of our forestry and sawmilling assets by increasing production and reducing unit costs," RusForest chief executive officer Garrett Soden said in the release.

"With Nova Capital as the new leading shareholder, we will have a strong Russian strategic partner to help us reach profitability.

"I am convinced that this proposal is the best alternative for all stakeholders and provides maximum exposure to the upside in our asset portfolio."

Company challenges

RusForest said it is making progress on many fronts, but it continues to face operational and financial challenges. The company said its board and management expect the current difficult market situation to continue into 2013.

Also, RusForest is in the process of reviewing the book values of its sawmills and expects to record an impairment of up to SEK 500 million in the year-end results to be released in March, the release said.

The company said the sawmill impairment is expected to cause it to breach its corporate bond debt-to-equity ratio covenant of 75%.

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