LONDON – “Abandon ship!” That’s the advice that ABN Amro Group is giving any remaining Nyrstar NV investors.
Nyrstar, Europe’s biggest zinc smelting company, is on an inevitable path toward a debt restructuring, said ABN’s Philip Ngotho, whose bearish calls have proven profitable this year. He predicted that the shares will be practically worthless, a major hit for Trafigura Group, its biggest shareholder.
The company’s equity and bonds both posted the biggest one-day declines on record, with the shares sinking as much as 41%to 74 euro cents in Brussels trading. ABN gave the company a target price of 1 cent. Nyrstar declined to comment.
The central problem for Nyrstar is that it’s increasingly looking like the company will struggle to refinance bonds due next year. Returns from zinc smelting have dropped due to lower processing fees and metal prices, and the company has been hamstrung by interest payments on debt racked up during an ill-fated foray into mining at the peak of the commodities supercycle.
With 340 million euros worth of debt coming due in September next year, investors’ attention is now focused on whether Trafigura will step in to help refinance the facility. The bonds dropped 11.5 cents on the euro to a new low of 57 cents, according to data compiled by Bloomberg.
Monday’s plunge cut Nyrstar’s market capitalization to €81.3-million, down from a peak of €2-billion when it listed in 2007. While the profitability of its smelting business looks set to improve over the next couple of years, the company’s heavy debt burden means that any operational setbacks could cause cashflow to wilt, Ngotho said.
“The most likely scenario is a debt-for-equity swap, possibly in combination with a private share placement to Trafigura, which would come at the cost of a full wipe out of the current equity,” Ngotho said in an emailed note. “We believe Trafigura will try to maintain a 20% shareholding in Nyrstar, as it has taken Trafigura a lot of pain and effort to secure offtake agreements.”