We continue our story about how two foreign investors came to the uranium mining industry in 2006-2007 – the Japanese company Marubeni Corporation and the unknown offshore company Swinton Investment and Finance SA.
It is interesting here that after the dismissal and arrest of NAC Kazatomprom President Mukhtar Dzhakishev, the new management of the national company did not so much help Japanese investors “deal” with their offshore business partners, but tried to prevent disclosure of information – firstly, about who offshore beneficiary, and, secondly, this whole story as a whole.
Today we are publishing two more minutes of the meeting between representatives of Marubeni Corporation and Vice President of NAC Kazatomprom Sergey Yashin. The first meeting took place on December 9, and the second on December 14, 2010. We publish them together, because they are small in size.
The negotiators continued to discuss the scheme that the Japanese side decided to use to solve the problem they are facing under the name “Swinton Investment and Finance SA”.
Since most readers, most likely, no longer remember the beginning of the story, let us quote from our first publication: “The history of the deal between Marubeni Corporation and Kazatomprom – 1”:
“And this story began in 2006, when the Japanese corporation Marubeni Corporation acquired stakes in two uranium mining subsidiaries of NAC Kazatomprom. But not directly from the national company itself, but from an offshore company – an intermediary.
“On the twentieth of December 2006, the offshore company Swinton Investment and Finance SA, PO Box 146, Road Town, Tortola, British Virgin Islands, entered into a sales agreement with Marubeni Corporation, 4-2, Otemachi 1-Chome, Chiyoda-ku, Tokyo, Japan.
The scheme was as follows.
The seller was the owner of all the shares of the offshore company – Energy Asia Holding Ltd, which, in turn, owned a 50 percent stake in Energy Asia (BVI) Limited.
The seller also held a 94% interest in an offshore company, Glendale International Investment LTD, PO Box 3175, Road Town, Tortola, British Virgin Islands, which also owned a 50% interest in Energy Asia (BVI) Limited.
So, Marubeni Corporation acquired from Swinton Investment and Finance SA all the shares of Energy Asia Holding Ltd, which, we recall, owned a 50 percent stake in Energy Asia (BVI) Limited. And for more than a solid amount of 540 million US dollars.”
Faced with the fact that an offshore business partner in Kazakhstan refused to even contact Marubeni Corporation, not to mention the readiness to invest additional investments in the project, the Japanese investor company decided to “dilute” the share of Swinton Investment and Finance SA, or rather its “subsidiary structures” “Glendale International Investment LTD” in their joint offshore company – the owner of shares in Kazakhstani uranium mining enterprises.
“Meeting with the Vice-President of the CAR, Mr. Yashin
December 9, 2010 10:10 — 11:00
Conference hall at the Intercontinental Hotel
CAR: Mr. Yashin, Vice-President of CAR, and Mr. Poltoratsky
Marubeni: Shikamura, Tsunehara, Fujii and Igor (as translator)
(Below is a summary of CAR comments, not verbatim as the meeting was a quick discussion around the board)
- The student understands the diagram. He likes an easily accessible format of communication. As mentioned earlier, the CAR cannot make a decision on its own. It is necessary to make a decision at the state level. Top government officials must decide which scheme to work on. The student is to meet today with senior government officials (President’s Office).
- (Phone call from Shkolnik received during the meeting) Instructions from Shkolnik: We need a well-prepared package of materials to submit to the government, as we need to have detailed and specific negotiations with them next week, after which negotiations will continue within the government.
- It is not possible for the CAR to acquire shares in an offshore company in order to convince the government to give up pre-emptive rights. And then, it is difficult for CAR to even acquire shares in any offshore company, it is impossible for us to directly acquire a part of the shares in EAL, the founders of which are completely unknown companies, such as Swinton or PSIL.
- It will be possible to convince the government to give up pre-emptive rights in connection with the dilution of the PSIL share. They will also be able to enter into a prior written agreement that they will not harm the interests of the Japanese founders and that they will not exercise preemptive rights. However, we want to dilute the PSIL share by less than 1%, or even better by 0.00%, then leave the money used for the dilution in Kazakhstan, i.e. CAR buys shares in BU and KK from EAL. We will need to confirm these deals in advance for parties that include the government. Can you have an easily accessible diagram material ready by Monday?
- If we give PSIL the same right as EAHL to give funds to EAL, would it be possible to dilute their stake by $1 per share? The Kazakh government will not be convinced by interest from 20% to 25%. It will be impossible to obtain their consent to waive the preemptive right.
- If both PSIL and EAHL are granted equal granting rights and both express a desire to purchase shares and EAL asks the Kazakh government to waive its pre-emptive right, the Kazakh government will not be able to exercise its pre-emptive right over PSIL shares only. The rights must be exercised in respect of all shares.
- In the event that PSIL agrees to provide funds in proportion to their share, the Kazakh government has the right to reject their offer (they may decide to refuse the transaction in addition to the decision to use or not to use the preemptive right), but the EAHL offer will not be rejected. In the event that the EAHL resubmits an application on its own behalf, it may be approved (Note CAR did not clarify this with certainty, but mentioned it as a theoretical possibility).
- If EAHL acquires 100% control of EAHL through a share acquisition, it will be possible to settle the deal based on the price at which CAR will buy shares from EAL, but we would like the purchase price to be quoted to us in advance so that we can reassure the government. Please include this moment in the materials you prepare.
December 14, 2010 10:45 — 11:15
CAR: Mr. Yashin, Vice President, and Mr. Poltoratsky
Marubeni: Tsunehara, Fujii and Igor as translator
YashinA: No decision is made between the government and the CAR. The government will provide an answer after you submit a proposal (Marubeni see attached Russian version)
Yashin: Can’t we buy a 10% stake for $30 million?
Fujii: This is the best we can do if we want to avoid the risk of litigation. If an injunction is issued to stop the procedure, BU and CC will lose the opportunity to receive funds, which will cause a lot of inconvenience for both CAR and U1.
Yashin: We will discuss this issue not only within the CAR, but also with the highest levels of government. We need to submit an answer by the 25th.
Fujii: It was mentioned last week that a letter confirming the waiver may be issued. Can we get such a letter from the government when you return with a reply on the 25th?
Yashin: It is unlikely that the government will release the letter before receiving a formal waiver. I imagine how Shkolnik writes such a letter, but it does not say anything specific; most likely, it will inevitably have a vague character, in which it will be written between the lines that “something will happen.” Even if we return with a reply on the 25th, this does not mean that we will have a letter on the 25th. I will speak to the Schoolboy regarding the specific details of the letter.
Fujii: What are you and Shkolnik planning for the end of the year?
Yashin: Our plans have nothing to do with this. We will contact you verbally, for example, we will contact Mr. Tsunehara.
Fujii: The reason for our somewhat haste is that we need to get approval from the KAR/Kazakh government on how to deal with this issue before we get the council’s approval. What we’re trying to start is dilution, a very unusual process that we can’t start without everyone’s consent. Another thing is that PSIL is pretty bossy trying to send some agents and technicians to start doing due diligence. We don’t know what their purpose is, but it might have something to do with funding. There is no time to waste, so it is important to start acting immediately after obtaining the consent of everyone.
Yashin: We understand the reason for the rush. I will talk to the Schoolboy about your proposal and explain the reason for the haste. By the way, when was Glendale registered? And when did they change the name to PSIL?
Fujii: As far as I remember, Glendale was registered in 2006, they changed their name to PSIL about a year ago. You said you would talk to the Schoolboy about our proposal, but what are your thoughts on all this?
Yashin: The only problem is the payment of 30 million US dollars to this unknown company PSIL. With regard to the dilution factor, we believe that in the region of 3-4% will be inevitable (at the last meeting it was noted that the percentage should be as close to zero as possible) because even if dividends flow, we can ignore this fact if the percentage remains at this level, and we will have time to consider the situation when dividends become payable. But 10% way is too much. There is no way to pay 30 million US dollars.
Yashin: Why is this such a big problem for you? Would like to know why?
Fujii: Because we don’t know who we pay this money to. Even if the amount is paid by Marubeni, KAP pays the amount indirectly when Marubeni acquires a part of Baiken-U and makes the purchase. We don’t pay for it in any way.
Yashin: As a result, we do not pay any money to an unknown company. This, too, I must discuss with the Schoolboy.
Fujii: In any case, we need to quickly get the opinion of the government, not just yes or no, but also a counter proposal that needs to be considered and discussed.
Yashin: It’s clear. I will talk to the Schoolboy about this, explaining the reasons for the rush.