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AngloGold makes U-turn on planned demerger

AngloGold Ashanti might be forced to sell assets to shore up its finances to pare debt.

AngloGold Ashanti might be forced to sell assets to shore up its finances to pare debt. Picture: supplied.

JOHANNESBURG/LONDON - Africa's largest gold producer AngloGold Ashanti has scrapped a planned demerger and rights issue after a shareholder revolt against the overhaul announced five days ago, and might be forced to sell assets to shore up its finances.

The South Africa-based gold producer last week unveiled its intention to split its international assets from its South African mines to create a new London-listed company, mirroring moves by other producers to reduce exposure to a country hit by rising labour costs and policy instability.

AngloGold had also planned a $2.1 billion rights issue to pare its net debt level of $3 billion, which the company's chief executive has called "unsustainably high".

Shareholders and analysts said splitting the Johannesburg-based company's domestic operations from the rest made sense given South Africa's tarnished reputation as a destination for mining investment.

But the size of the rights issue was just too big.

"A number of shareholders have expressed concerns about certain aspects of the proposed transactions, in particular the quantum of the equity capital raising," the company said in a statement announcing the dramatic about-turn.

"AngloGold Ashanti has, therefore, decided not to proceed with the restructuring and capital raising."

With the rights issue now off the table the company might have to sell assets to pare debt.

"Asset sales are on the cards. We will look at all options," Chief Executive Officer Srinivasan Venkatakrishnan said in response to a question about the issue in a conference call from Denver, where he was attending an industry meeting.

SHAREHOLDERS' CONCERNS

Billionaire hedge-fund manager John Paulson had been one of the most outspoken critics of AngloGold's abortive plan, saying the rights issue would be counterproductive for shareholders.

"Paulson will not vote its shares in favour of AngloGold Ashanti's proposal to conduct a highly dilutive $2.1 billion rights issue to support a partial spin-off of its international assets," his hedge fund Paulson & Co, which owns about 6.6 per cent of AngloGold Ashanti, said in an emailed statement.

"While the separation of the company into an international business and a South African business makes strategic sense, the small amount of the spin-out, the likely holding company discount, and the highly dilutive equity offering would, on a net basis, destroy shareholder value."

The company's decision to drop its plan, after consulting two thirds of its shareholding base at the weekend, raises questions about how it can cut its debt level and how quickly.

Investec analysts suggested in a note it should sell its share in the Kibali mine in the Democratic Republic of Congo to joint venture partner and rival Randgold.

AngloGold net debt/EBITDA, a ratio used as a measure of leverage, is currently at around 1.73.

Its rival Gold Fields had a level of around 0.7 when it implemented a demerger in 2013 that gave life to South African gold producer Sibanye Gold.

"When you consider the amount of debt in AngloGold, having a rights issues makes sense to me. I think the main problem I had was that they did not give any details on the rights issue. Markets do not like uncertainty," said Michael Schroder, a fund manager at Old Mutual, which has a 1.7 percent stake in AngloGold, according to Reuters data.

Schroder said the fact that AngloGold intended to initially retain a 65 percent stake in the company it was planning to spin off and list in London was also important.

"People potentially interested in buying shares in the new company would have seen that the big parent might have wanted to offload the stock at some point, so there could have been an overhang of shares for years to come," he said.

When the producer unveiled the plan last week, its share price fell over 12 percent as investors gave it a thumbs-down.