AngloGold debacle tarnishes UBS and Goldman

IFR 2051 20 September to 26 September 2014
3 min read
Graham Fahy

Institutional shareholders have humiliated AngloGold Ashanti by forcing the miner to abandon plans for a huge capital increase and a spin-off of its international assets.

The company will not proceed with a proposal to reduce debt by tapping existing shareholders in a US$2.1bn rights issue, or the demerger of its international operations into a new London-listed company.

The reversal is a setback for the company’s management, and a source of acute embarrassment for UBS and Goldman Sachs, which were the banks tasked with leading the restructuring.

Major investors refused to support the plan because they believed the dilutive effect of the rights issue would outweigh the benefits of the demerger. The company said there was broad support for the strategic logic of the restructuring but the proposal floundered because a number of shareholders expressed concerns about the size of the equity capital-raising.

Blame game

Privately, bankers placed the blame squarely on the shoulders of the South African regulators, which created the need for a massive capital increase by insisting AngloGold post-split be debt-free, and the company, for pushing ahead with its plans without tacit agreement from its largest shareholders.

John Paulson, the US-based fund manager who holds 6.6% of the miner, had been pushing the company to unlock value by splitting the business. But he publicly rubbished the proposal when the share price collapsed, adding to the hundreds of millions of dollars the position has cost the fund manager since acquiring the gold shares as a hedge against inflation several years ago.

“Paulson didn’t want a rights issue because he didn’t want to put any more cash into gold shares, but the deal was in trouble before his intervention,” said a local ECM banker. “Investors threw up on the deal the moment they saw the size of the capital increase. Most expected any capital increase to be between US$750m and US$1bn.”

Another banker said investors did not understand why the company wanted to spin off the international assets, believing a straightforward IPO would achieve a far higher multiple. Some also questioned why the company would retain 65% of the new international company, creating a stock overhang that would hamper the share price performance for years.

Trolley dash

Perhaps what surprised observers most, was the role of the lead banks. Proposals of this type are usually discussed at length with major shareholders before a public announcement, with corporate brokers expected to lead the dialogue and know what investors are thinking.

According to locals, the banks involved were still trying to drum up support for the deal just the day before the announcement, even turning up at some institutions unannounced.

One senior African banker said this defied logic as the South African equity market is episodic with trading around events and news flow, and so investors would be happy to be wall-crossed for days or even weeks if necessary.

The debacle leaves AngloGold Ashanti with few options now that an equity issue is off the table. The company is expected to try to sell non-core assets in order to reduce debt.

AngloGold Ashanti