ICBC provides $340 million loan for Phase 1 of Kimkano & Sutarsky (K&S) Iron Mine Processing Plant Project (Linked to Project ID#67157)

On March 23, 2010, Industrial and Commercial Bank of China (ICBC) and IRC Limited signed a non-binding indicative term sheet in relation to the funding of 85 percent of the Phase 1 of the Kimkano & Sutarsky (K&S) Iron Mine Processing Plant Project. Then, on December 10, 2010, ICBC and Kimkano-Sutarsky Mining and Beneficiation Plant LLC (LLC KS GOK) — a special purpose vehicle (SPV) and wholly-owned subsidiary of IRC Limited — signed a $340 million loan facility agreement for Phase 1 of the Kimkano & Sutarsky (K&S) Iron Mine Processing Plant Project. The loan, which is captured via Project ID#67153, carried the following borrowing terms: an 11.5 year maturity, a 4 year grace period, an insurance fee of 4.61% (of the face value of the loan), and an interest rate LIBOR plus a 2.8% margin. However, according to the 2018 Annual Report from Petropavlovsk (the largest shareholder of IRC Limited), the effective interest rate of this loan facility was 6.8% in 2018 and 6.41% in 2017. The loan facility was repayable semi-annually in 16 installments of $21,250,000, beginning in December 2014 and ending in June 2022 (the final maturity date). The loan was backed by a corporate repayment guarantee from Petropavlovsk PLC — the largest shareholder of IRC Limited — and a Sinosure credit insurance policy. It was also secured by (i.e. collateralized against) a minimum cash deposit in an ICBC-controlled escrow (security deposit) account. The borrower had deposited $6 million in the escrow (security deposit) account as of December 31, 2011, $6 million as of December 31, 2013, and $27,250,000 as of December 31, 2014. The borrower was expected to use the proceeds of the loan to finance 85% of the cost of a $400 million (HK$3.11 billion) engineering, procurement and construction (EPC) contract that it signed with China National Electric Engineering Corporation on December 6, 2010. On December 14, 2011, the LLC KS GOK made the first drawdown from the loan facility amounting to $6.9 million. As of December 31, 2014, IRC Limited had drawn down approximately $287,976,000 from the loan facility with another $52,024,000 left undrawn. On February 15, 2015, ICBC granted a conditional extension to the availability period of this undrawn amount by six months to June 8, 2015 and all relevant condition precedents were satisfied as of February 27, 2015. On December 14, 2011, the borrower made its first loan drawdown amounting to $6,958,000. During the first six months of 2012, the borrower made further drawdowns amounting to $75,519,000. Then, between December 31, 2012 and December 31, 2013, the borrower made further drawdowns amounting to $187,811,000. Additional drawdowns amounting to $93,207,000 were made by the borrower in 2014. The first installment of $21,250,000 was repaid in December 2014. As of December 31, 2014, the loan’s (principal) amount outstanding was $266,726,000. There are signs that the ICBC loan underperformed vis-a-vis the lender’s original expectations. On February 27, 2017, ICBC agreed to restructure two repayment installments of the $340 million loan facility. These two rescheduled repayments of $21,250,000 were worth $42.5 million in total, and they were originally due for payment on June 20, 2017 and December 20, 2017. They were rescheduled evenly into five subsequent semi-annual repayment installments in June 20, 2018, December 20, 2018, June 20, 2019, December 20, 2019 and June 20, 2020. As a result, each of the repayment installments increased by $8.5 million to an amount equal to $29.75 million. The February 27, 2017 restructuring agreement is captured via Project ID#67157. Then, in June 2018, the loan’s corporate guarantor (Petropavlovsk PLC) announced that it would provide $29.75 million to IRC Limited to enable its wholly-owned subsidiary (LLC KS GOK) to meet a June 2018 repayment to ICBC. At the time, Petropavlovsk PLC also said that it was in ‘advanced’ talks with a major Russian bank to refinance the entire $340 million project loan. IRC Limited said n June 2018 that it LLC KS GOK was unable to meet payments to ICBC and that ‘if a missed repayment of the ICBC facility occurs, this would result in a default under the facility and would create broader problems for Petropavlovsk.’ Then, on December 18, 2018, IRC Limited entered into a facility agreement with Gazprombank (a Russian bank) worth $240 million in total. The loan facility had a maturity of March 2026 and consisted of two tranches. The principal under the first tranche amounted to $160 million with interest being charged at LIBOR plus a 5.7% margin per annum it was repayable in equal quarterly payments during the term of the Gazprombank Facility (with the final payment scheduled for December 2026). The principal under the second tranche amounted to $80 million with interest being charged at LIBOR plus a 7.7% margin per annum and it was repayable in full at the end of the loan term (December 2026). In March 2019, IRC Limited drew down $228.9 million in total from the Gazprombank Facility to fully repay the amounts outstanding under the ICBC facility (worth approximately $169 million) and the loans provided by Petropavlosk Plc (worth approximately $57 million). The remaining loan proceeds were to finance the K&S Iron Mine Processing Plant Project’s working capital needs of approximately $3 million. The K&S Mine, 100% owned by IRC Limited, is located in the Jewish Autonomous Region (EAO) of the Russian Far East. It is the second full-scale mining and processing operation that IRC Limited has developed. K&S enjoys a geographical advantage. The Trans Siberian Railway is linked directly to the mine site, allowing or easy transport of products to customers in China. K&S is located in the Obluchenskoye District of the Jewish Autonomous Region (EAO) in the Russian Far East. The mining operation is 4 kilometers from the town of Izvestkovaya, through which the Trans Siberian Railway passes. It is also 130 kilometers from the federal highway connecting to the regional capital of Birobidzhan, and 300 kilometers from Khabarovsk, the principal city of the Russian Far East. China National Electric Engineering Co., Ltd (CNEEC) was the contractor responsible for implementation. The project was completed on August 30, 2016.

Additional details

1. The Russian project title is Ooo "Kimkano-Sutarskiy Gok" or ООО "Кимкано-Сутарский ГОК. 2. The Chinese project title is 中电工俄罗斯铁矿建设项目. 3. Average 6-month LIBOR in December 2010 was 0.458%, so the all-in interest rate has been calculated as 0.458% + 2.8% = 3.258%. 4. The Sinosure credit insurance policy provided insurance cover of up to 95 percent of the ICBC loan (facility) in relation to certain commercial and political risks (including non-payment by the borrower of the ICBC facility or insolvency of the borrower). In the event that such commercial or political risks occurred, and ICBC iswasnot able to recover amounts owing to it under the ICBC loan from either the borrower of the ICBC loan, or from Petropavlovsk PLC as the corporate guarantor of the ICBC loan, ICBC was entitled to make a claim to Sinosure up to the insured amount.

Number of official sources

12

Number of total sources

17