Fri | Sep 25, 2020

CAP to pay off debt in lay up to Jamalco IPO

Published:Friday | August 14, 2020 | 12:24 AM
The Jamalco refinery complex in Clarendon.
The Jamalco refinery complex in Clarendon.

Co-owner of Jamalco alumina refinery, Clarendon Alumina Production Limited, CAP, will pay off a large portion of its debt, which in turn would improve its overall equity position in the lay up to the refinery’s planned listing on the stock exchange.

The funds to repay the debt would come from the Government of Jamaica, GOJ. Through CAP, the Government is a partner with Noble Group in the refinery.

“CAP, through a loan from the GOJ, will repay debt obligations due to the Noble Group, in the amount of approximately US$136.7 million,” said Minister of Finance and Planning Dr Nigel Clarke in a statement to Parliament this week. “The transactions improve CAP’s equity value,” he said.

CAP holds 45 per cent of Jamalco, while the Hong Kong-based Noble Group holds 55 per cent via subsidiary General Alumina Jamaica. Both parties fund the capital- intensive operations to mine bauxite and then refine it into alumina, with Noble as operating partner.

Clarke said the transaction paves the way for the incorporation and initial public offering, IPO, of Jamalco via the Jamaica Stock Exchange.

The Financial Gleaner was informed on Thursday that the Government made preparations in its Budget for the repayment. The listing of Jamalco won’t happen this year, said sources in the know.

The loan to be repaid by CAP dates back to 2013, when the company entered into a US$120-million arrangement with Noble to repay amounts CAP owed to then joint-venture partner Alcoa. The loan paid off CAP’s portion of the working capital debt to Alcoa and also funded further shortfalls that were expected over the medium term as the alumina market was depressed.

The refinancing announced by Clarke this week is projected to reduce Jamaica’s debt stock by about 1.0 per cent. The repayment retires expensive debt being serviced at 8.0 per cent. That’s nearly 3-4 points above the current 4.5 per cent rate that Government can source funds on the capital market.

“Given how commodity markets have performed over the course of the alumina sales agreement to date, with the benefit of hindsight, the alumina sales agreement has been disadvantageous to Jamaica. The transactions provide an exit from these arrangements,” Clarke said.

A new three-year marketing arrangement will allow CAP to sell its own alumina in a similar method to Noble.

“It is anticipated that after the incorporation and listing of Jamalco on the Jamaica Stock Exchange, the Jamalco entity will build the technical capacity to market its own alumina. It is intended that by the time the three-year marketing agreement ends, the technology transfer will have occurred for Jamalco – in which the GOJ, Noble, and, by that time, others are invested – to profitably market its alumina,” Clarke said.

Earlier this year, the Noble Group formed a pact with the Jamaican Government to reorganise the assets and operations of alumina refinery Jamalco into a holding company as a precursor to the eventual listing of the refinery.

The refinery is currently experiencing losses due to falling alumina prices and weakened demand owing to the COVID-19 pandemic. Jamalco’s March quarter results show a net loss of US$2.8 million compared to a US$18.4-million profit a year earlier, as reported in Noble’s financials. The refinery’s assets were estimated at US$477 million, down from US$499 million a year earlier.