The process of raising US$700 million to start Karnalyte’s potash mine in Saskatchewan

A good deal of creativity was required to generate US$700 million indebted and equity to allow for the making of a potash mine in Saskatchewan.

Creativity was needed because Karnalyte Resources, who owns the mine, lacked the balance sheet and also the share price to raise the necessary capital by itself. Last September, to help in that process, Karnalyte Resources retained Dundee Capital Markets as its adviser. Philip Williams, a managing director, was charge banker around the file.

Given its very own situation, Karnalyte turned to Gujarat State Fertilizers and Chemicals Limited (GSFC) – a publicly listed company in India whose major shareholder is really a unit of the state of Gujarat. GSFC has been a shareholder (19.9 per cent) in Karnalyte since 2013 and has signed a 20-year agreement to buy 56 per cent of the mines’ output when it’s operational.

Here would be the important elements within the financing package, the overall objective of that was to keep a 3:1 ratio between debt and equity:

US$500 million via 20-year senior secured debt: That loan, which is backstopped by GSFC, is going to be syndicated among several banks, many of which are required to be from India. SBI Capital Markets, a unit of the State Bank asia, is leading the syndication efforts.A seven-year offering of subordinated personal debt: While investors are buying a coupon-paying debt instrument, the debt is going to be considered equity through the project lenders for that purposes of the debt-equity ratio. At the end of seven years, Karnalyte is required to enhance the funds needed to repay your debt by way of an equity financing. (It might also refinance the debt at the end of seven years.) If for reasons uknown, Karnalyte can’t enhance the equity after seven years, GSFC accounts for repaying the borrowing.An equity raise: Karnalyte will hire an underwriter and sell shares to investors. Plans demand the equity raise and the unsecured debt to become about the same size.

GSFC, that has agreed to fund any cost overruns on constructing the mine, has decided to lots of conditions. A key condition is the fact that GSFC is required to maintain a 51 percent voting stake in Karnalyte as the secured debts are outstanding. (That voting interest is not necessarily GSFC’s economic interest.)

To ensure GSFC keeps a 51 per cent voting interest, the idea of a retractable special voting has been introduced. The SVS enables the Indian banks, that are area of the senior debt group, to syndicate and lend to a Canadian project.

Once that debt is repaid, the SVS is going to be retracted.