B: Proposed special distribution by Hurricane Hydrocarbons called management
entrenchment by largest shareholder
TORONTO, May 17, 2001 /PRNewswire via COMTEX/ -- Mr. Askar M. Alshinbaev,
Managing Director of Central Asian Industrial Holdings, N.V. (CAIH), today said
that the special distribution to shareholders of a debenture with a face value
of $4 proposed by Hurricane Hydrocarbons Ltd. is an attempt by directors and
management of Hurricane to keep shareholders from exercising their judgement
with respect to CAIH's fully financed $189 million cash offer to acquire 18.4
million Common Shares of Hurricane.
"Aside from being a defensive measure to attempt to block CAIH's proposed
partial offer to Hurricane shareholders, the Hurricane proposal, which is a
promise to pay nothing now but $4 at an unspecified rate over 5 years, makes the
company a more risky investment for its shareholders. It has the potential to
burden the company with a level of debt that it might not be able to service.
Moreover, the distribution appears to be a poison pill that Hurricane's
directors and management are trying to put into place without shareholder
approval," Mr. Alshinbaev said.
CAIH believes that the proposed distribution is an attempt by Hurricane to
deprive Hurricane shareholders of their fundamental right, as shareholders, to
respond to a takeover bid and urges the regulators to act against the proposed
distribution.
CAIH said the distribution would not be in the best interests of Hurricane
shareholders for the following reasons:
- The proposed distribution may be inefficient from a tax perspective
for both Hurricane and individual, taxable shareholders;
- Hurricane's management and directors are using the "change of control"
provision in the debentures as a means to entrench themselves, not to
create additional value for shareholders;
- The effect on the company of incurring significant amounts of non-
deductible interest expense;
- The company may run into difficulties funding its obligations under
the proposed terms of the debenture because it is funded from
forecasts of future cash flow.
In addition, CAIH noted that Hurricane has not provided shareholders with
critical information about the proposal. For example, no information has been
provided on the immediate tax costs to shareholders paying tax on distributions,
on withholding taxes on non-residents who receive distributions or on indicative
interest rates based on current market conditions.
As for Hurricane's capacity to pay interest on the debentures in future periods
Mr. Alshinbaev said, "Hurricane's first quarter financials appear to show that
the majority of its debt and its cash are tied up inside joint ventures that
Hurricane does not control and that inventory has risen to a level that concerns
us."
Mr. Alshinbaev said, "Moreover, if Hurricane expects that the funds to pay the
interest are to come from dramatic increases in production, we believe this is
highly speculative. We were astonished to hear that Hurricane claimed that they
could produce 180,000 bbl/day by 2003. We do not believe that the current
management team has the capability to deliver the substantial increase in
production volumes needed to provide the cash to pay distributions to holders of
the proposed debentures."
Mr. Alshinbaev said that CAIH was also troubled by the inclusion of a change of
control provision in the terms of the proposed debentures. "This implies that
the real purpose of the special distribution is not to effect a capital
restructuring of the company but to entrench management and to muddy the waters
around the value proposition contained in our proposal."
"We have concluded that the proposed special distribution is more about
enhancing protection for Hurricane's management than about enhancing value for
shareholders. It tells us that Hurricane has been unable to attract an
alternative to our proposal and is now using this special distribution as a way
of installing a poison pill through the backdoor," Mr. Alshinbaev said.
CAIH is a Netherlands Antilles-based investment holding company associated with
the Kazkommertsbank group of companies in Kazakhstan. CAIH currently focuses its
investment activities on companies operating in Kazakhstan in oil and gas, power
generation and telecommunications. Besides its 30% share ownership in HHL, CAIH
holds a 35% share in Nelson Resources Limited, a TSE-listed company with oil and
gas interests in Kazakhstan.
Kazkommertsbank is Kazakhstan's leading private bank engaged in banking and
financial services. Its shares are listed in Kazakhstan and London.
SOURCE Central Asian Industrial Holdings, N.V.
CONTACT: Warren Weeks, GPC International, Voice:
(416) 598-0055 (308), Cell: (416) 809-2608; VISIT OUR WEBSITE
www.
caih-info.com
prnewswire.com |
