|
|
|
|
Fior was developing a project for the construction of a new plant
for the direct reduction of iron-ore in the Venezuelan Guayana
region. This plant will employ the Finmet ("Finos Metalizados")
process developed by Fior and Voest-Alpine Industrieanlagenbau
("VAI") (see Note 11). On September 23, 1997, IBH formed a Joint
Venture with an Australian mining company, The Broken Hill Proprietary
Company Limited ("BHP"), to jointly develop, construct and operate
this project, and also to operate the plant formerly owned by
Fior; the net assets formerly owned by Fior (see Note 1), including
the project costs, represented the initial net assets of the Joint
Venture.
Each of IBH and BHP have a 50% ownership interest in the Joint
Venture, which consists of three companies, each of which is 50%
owned by the two parties: i) Orinoco Iron, C.A. ("Orinoco Iron"),
a development stage enterprise, which will construct, own and
operate a new 2.2 million tons per year expected capacity hot
briquetted iron plant utilizing the Finmet process (the "Orinoco
Iron plant"); ii) Operaciones RDI, C.A. ("Operaciones RDI") which
owns and operates the plant formely owned by Fior (RDI started
operations in May 1997) and iii) Brifer International Ltd. ("Brifer"),
which owns the Company's proprietary technology involved in the
improved fluid bed iron-ore fines reduction process (the "Improved
Fior Process") and, jointly with VAI, the Finmet process (see
Note 11).
In September 1997, under a Joint Venture agreement, BHP subscribed
capital stock increases in Operaciones RDI and Orinoco Iron, which
gave BHP a 50% participation in these companies. Also, BHP bought
from IBH for US$30 million (present value of US$28.7 million at
such date), payable in cash (see Note 4), 50% of Brifer shares,
of which US$20 million was paid by BHP during October and November
1997, and the remaining US$10 million was paid in 1999. Because
IBH will have commitments to support the Joint Venture (additional
equity contributions and guarantees on bank financing), the gain
on this sale was recorded as a reduction of the investment base
of IBH in the Joint Venture companies. Therefore, IBH's investment
cost basis will be less than its proportionate share of the equity
of the Joint Venture companies. This cost basis difference will
be recognized when the long-term commitments are fulfilled or
released.
As result of the transfers of assets indicated in Note 1, IBH
also made loans in 1997 to the Joint Venture companies for US$61.9
million, which bear interest at a rate of 17%. In November 1997
these loans were repaid to IBH. At September 30, 1997, these loans
were presented as part of the investment cost basis of the Joint
Venture.
Following is a summary of this exchange of assets, the effects
on the financial statements of formation of the Joint Venture
and other changes in the investment cost basis during 1999 and
1998:
|
(Thousands
of U.S. dollars)
|
| IBH
investment base prior to the formation of the Joint
Venture: |
|
Equity
(100% participation)
|
13.112 |
Notes
payable to IBH
|
61.921 |
| Effects
upon formation of the Joint Venture: |
|
Historical
cost basis of Brifer shares sold (50% participation)
|
- |
Receivable
from BHP in excess of historical cost basis of
Brifer shares sold
|
(28.740) |
| IBH
net investment base in the Joint Venture companies
(50% participation) at September 30, 1997 |
46.293 |
| Equity
on results during 1998 (net of US$ 3.9 million of
interest expenses charged to the Joint Venture companies)
|
(307) |
| Increase
in capital stock of Orinoco Iron |
4.700 |
| Notes
and loans paid by the Joint Venture companies |
(58.207) |
| Participations
on long-term loans acquired by IBH |
60.000 |
| Accrued
interest on notes and participations, net |
2.865 |
| Accretion
of notes payable to IBH |
468 |
| IBH
net investment base in the Joint Venture companies
(50% participation) at September 30, 1998 |
55.812 |
| Equity
on results during 1999 (net of US$2.7 million of interest
expenses charged to the Joint Venture companies) |
(6.721) |
| Increase
in capital stock of Orinoco Iron |
7.900 |
| Increase
in capital stock of Operaciones RDI |
750 |
| Increase
in capital stock of Brifer |
3.000 |
| Notes
and loans paid by the Joint Venture companies |
(36.000) |
| Participations
on long-term loans acquired by IBH |
40.000 |
| Accrued
interest on notes and participations, net |
5.606 |
| Accretion
of notes payable to IBH |
348 |
| IBH
net investment base in the Joint Venture companies
(50% participation) at September 30, 1999 |
70.695 |
|
IBH has acquired, without recourse, participations in long-term
loans granted by a bank to Orinoco Iron and Operaciones RDI. The
bank continues to administer the loans. Below is presented a detail
as of September 30, 1999 of the participations acquired by IBH:
| Maturity
date |
Interest
rate
|
Amount
in US$
|
| |
(%)
|
(In
Thousands)
|
|
October
2012
|
17
|
91.681
|
|
September
2000
|
8
|
45.959
|
| |
|
137.640
|
|
Presented
as:
|
|
|
|
Short-term
accounts receivable (Note 4)
|
|
45.959
|
| Long--term
accounts receivable (Note 4) |
|
3.026
|
| Part
of the investment base in the Joint Venture |
|
88.655
|
|
|
137.640
|
|
The repayment of the long-term loans will be made on the condition
that Orinoco Iron and Operaciones RDI comply with commitments
to financial creditors and maintain certain ratios of indebtedness
and cash flows. The participations on these loans have been considered
as permanent financing to support the Joint Venture companies
and presented as part of the investment cost basis of the Joint
Venture.
The effect of this Joint Venture transaction was to reduce IBH´s
participation in the net assets and operations of RDI, Orinoco
Iron and Brifer from 100% to 50%. Below is a summary of combined
financial information for the Joint Venture companies, which beginning
in September 1997 are accounted for on the equity basis:
| |
As
of and for year ended September 30,
|
| |
1999
|
1998
|
|
|
(Thousands
of U.S. dollars)
|
|
Balance
sheet data at the end of the year
|
|
|
| Current
assets, net of current liabilities |
18.853
|
10.990
|
|
Property,
plant and equipment, net
|
757.829
|
364.582
|
|
Total
assets
|
811.615
|
416.332
|
| Total
liabilities |
759.125
|
402.311
|
| Shareholders´
Equity |
52.490
|
14.021
|
|
Income
statement data
|
|
|
| Net
Sales |
34.976
|
47.220
|
|
Gross
(loss) profit
|
(6.994)
|
6.457
|
|
Operating
(loss) profit
|
(12.691)
|
548
|
| Net
loss |
(18.811)
|
(8.534)
|
| Capital
expenditures |
361.773
|
248.526
|
|
The results
of operations of IBH include the following income (expense) from
these Joint Venture
companies:
| |
As
of and for year ended September 30,
|
| |
1999
|
1998
|
|
|
(Thousands
of U.S. dollars)
|
|
|
|
|
| Equity
participation in results |
(6.721)
|
(307)
|
|
Interests
income from loans grantes (Note 4)
|
8.306
|
7.903
|
|
|
1.585
|
7.596
|
|
In order to finance the construction of the Orinoco Iron plant,
Orinoco Iron has arranged to borrow up to approximately US$613
million ("senior debt") pursuant to several credit facilities.
The facilities contemplate financial covenants that restrict Orinoco
Iron's ability to make distributions to shareholders if certain
cash and debt services coverage ratios are not met.
All senior lenders share a common security package consisting
of: (1) a security interest in substantially all of the assets
of Orinoco Iron (as borrower) and RDI (as guarantor), (2) security
interest on sale contracts, construction contracts, supply contracts
and insurance policies of Orinoco Iron and Operaciones RDI; (3)
a pledge by IBH of its shares ownership in Orinoco Iron, RDI,
SVS International Steel Holdings and Venezolana de Prerreducidos
Caroní "Venprecar", (4) a pledge by SVS of its shares ownership
in Siderúrgica del Caroní "Sidecar", S.A., (5) a pledge by Sidecar
of its shares ownership in Venprecar, (6) a real estate mortgage
over the land and civil works owned by Venprecar, (7) a commercial
establishment mortgage over the commercial establishment of Venprecar,
(8) escrow agreements over two bank accounts of Venprecar, and
(9) an unconditional guarantee by RDI.
Pursuant to completion support agreements, IBH and BHP has each
agreed to: (1) provide their respective share of specific equity
and subordinated debt funding aggregating US$146 million prior
to final completion of the Orinoco Iron plant, (2) guarantee that
future cash flows from RDI (estimated at approximately US$22.8
million), previous to the completion of the Orinoco Iron plant,
will be available for the Project, (3) commit to provide their
respective share of a facility to cover cost overruns totaling
US$90 million, and (4) guarantee payment of their share of senior
debt if it becomes due before final completion of the plant.
|
|
