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Under what circumstance will NCSP offer to buyback its shares from holders?

The Extraordinary General Shareholder’s   Meeting of NCSP (“EGM”) scheduled for December 16, 2010, will vote, on whether to approve a major transaction (the Transaction Proposal). In accordance with the Russian legislation, if the Transaction Proposal is approved by the EGM, all such NCSP’s shareholders who voted against or did not vote in respect of the Transaction Proposal have the right to submit their shares for repurchase by NCSP (the “Buyback”). NCSP has instructed JPMorgan Chase Bank, N.A., its Depositary for NCSP’s GDR program (J.P. Morgan or the Depositary), to establish procedures for eligible GDR holders to participate in the Buyback by arranging to cancel their GDRs and instructing the Depositary to deliver the underlying shares into the Buyback

 

What are the details of the major transaction?

The major transaction (a series of interrelated transactions) is to acquire 100% of participation interest in the charter capital of LLC Primorsk Trade Port funded through bank debt financing (the «Transaction»), the price (cash value) of which exceeds 50% of the balance sheet asset value of the Company as of the most recent reporting date, which also constitutes an interested party transaction due to the interest of the Company’s shareholder Novoport Holding Ltd, incorporated and existing under the laws of British Virgin Islands, holding more than 20% of the Companys voting shares, and governed by the following agreements:

a) Sale and Purchase Agreement to acquire 100% of participation interest in the charter capital of LLC Primorsk Trade Port between the Company as the Buyer and Omirico Limited, incorporated and existing under the laws of the Republic of Cyprus, as the Seller, and Kadina Limited, incorporated and existing under the laws of British Virgin Islands, as a party (the “Sale and Purchase Agreement”).

Parties and beneficiaries of the Sale and Purchase Agreement:

o       Buyer – PJSC Novorossiysk Commercial Sea Port;

o       Seller – Omirico Limited, organized and existing under the laws of the Republic of Cyprus;

o       Party – Kadina Limited, organized and existing under the laws of British Virgin Islands.

Subject matter of the Sale and Purchase Agreement:

Acquisition by the Company of 100% participation interest in the charter capital of LLC Primorsk Trade Port on the terms and conditions set out below.

Principal Terms of the Sale and Purchase Agreement

o       The Seller provides certain representations and warranties with respect to the assets, business operations, legal status and legal capacity of LLC Primorsk Trade Port and its rights to the 100% participation interest in the charter capital of LLC Primorsk Trade Port, as well as with respect to the Seller’s own legal capacity and other issues specified in the Sale and Purchase Agreement;

o       The Buyer undertakes to pay the purchase price in the amount of the market value of 100% participation interest in the charter capital of LLC Primorsk Trade Port determined by the independent appraiser – CJSC Professional Appraisal Center (Report No. 49 of September 30, 2010) as two billion one hundred fifty-three million US Dollars (US $2,153,000,000), being the equivalent of the market value of the subject of appraisal in Russian Rubles calculated in accordance with the official exchange rate of the Bank of Russia as of the date of the appraisal, subject to the approval of this price by the federal executive authority as a recommended and fair price for this transaction in accordance with Article 77(3) of the Federal Law “On Joint Stock Companies”, and subject to maintaining financial results of LLC Primorsk Trade Port at a level no worse than that existing as of the date of appraisal, namely, with net debt at a level not exceeding 10,935,906,000 Russian Rubles;

o       Kadina Limited, organized and existing under the laws of British Virgin Islands, agrees, on the terms and conditions set out in a separate share purchase agreement concluded by and between Kadina Limited, organized and existing under the laws of British Virgin Islands, and Omirico Limited, organized and existing under the laws of the Republic of Cyprus, to sell 100% of outstanding of Novoport Holding Ltd, organized and existing under the laws of British Virgin Islands, which owns 50.1% shares of the Company, to Omirico Limited, organized and existing under the laws of the Republic of Cyprus.

b) Loan Facility Agreement between the Company as the Borrower and OAO Sberbank or OAO Bank VTB or VTB Capital PLC or another credit organization to be selected by the Company through an open tender to determine a financial organization to provide a loan facility in the amount not exceeding 1 950 000 000 U.S. dollars (the “Loan Facility Agreement”) on the following material terms:

Parties and beneficiaries of the Loan Facility Agreement:

o       PJSC Novorossiysk Commercial Sea Port

o       OAO Sberbank or OAO Bank VTB or VTB Capital PLC or another credit organization to be selected by the Company through an open tender to determine a financial organization to provide a loan facility.

Subject matter of the Loan Facility Agreement:

o       The principal amount shall be 1 950 000 000 (one billion nine hundred fifty thousand million) U.S. dollars;

o       Purpose of the loan is to finance acquisition by the Company of 100% participation interest in the charter capital of LLC Primorsk Trade Port;

Principal Terms of the Loan Facility Agreement:

o       The principal amount shall be repaid quarterly in equal installments. First payment is due no earlier that after 36 calendar months from the date of the Loan Facility Agreement. The loan shall be disbursed by a single payment within 30 days from the date of the Loan Facility Agreement;

o       The term of the loan shall be 7 (seven) years from the date of the Loan Facility Agreement;

o       The Loan Facility Agreement may specify both fixed and floating interest rate, provided that they are applied to different interest periods. Interest on the loan shall be accrued and paid for each interest period, which comprises 3 months, and shall equal to: a) 3-month LIBOR rate and an annual margin not exceeding 7% if a floating interest rate is applied; b) 9% annual interest if fixed rate is applied;

o       Commission for the loan facility arrangement fee shall not exceed 0.6% from the principal amount, payable at the date of the loan disbursement;

o       The Loan Facility Agreement may provide for a prepayment fee and other charges;

o       Borrower’s obligations under the Loan Facility Agreement shall be secured by: a) pledge of the Companys ordinary shares held by Novoport Holding Ltd representing 50.1% of the Companys charter capital; and b) suretyship (guarantee) of LLC Primorsk Trade Port;

o       Third parties may provide other security for the Borrower’s obligations under the Loan Facility Agreement;

o       The Lender may assign and/or transfer its rights under the Loan Facility Agreement to third parties without limitation.

To authorize the General Director of the Company to perform all actions required to implement the sale and Purchase Agreement and the Loan Facility Agreement, on behalf of the Company, including:

a) determining and approving other terms of the Sale and Purchase Agreement and the Loan Facility Agreement and signing of the Sale and Purchase Agreement and the Loan Facility Agreement, including amendments, extensions, and supplements thereto, and any other documents related to the Sale and Purchase Agreement and the Loan Facility Agreement; and

b) any other actions required to implement the Transaction.

 

Who is eligible to participate in the Buyback?

Shareholders and GDR holders who (i) owned their positions as of the November 8, 2010, EGM record date and (ii) either voted against or did not submit a vote in respect of the Transaction Proposal can have their shares purchased by NCSP at a fixed price, as determined by the company’s Board of Directors.

 

What is the price offered by NCSP for the shares eligible to participate in the Buyback?

NCSP’s Board of Directors has approved a fixed price of RUB 4.90 to be offered for each ordinary share eligible to participate in the Buyback. The consideration paid on shares delivered into the Buyback by the Depositary at the instruction of an eligible GDR holder will be converted into US Dollars and remitted by the Depositary to the participating GDR holder net of a cancellation fee of US $0.05 per GDR cancelled.

 

Who made the valuation and how?

To perform an independent appraisal of PTP’s market value in accordance with the requirements of Article 77 of the Russian Joint Stock Companies Law (the “JSC Law”), NCSP has retained an independent appraiser, CJSC Professional Appraisal Center. The purchase price for the Primorsk Acquisition proposed to the EGM by NCSPs Board of Directors has been set by the independent appraiser at US$2.153 billion, assuming net debt of PTP of not greater than RUR 10.94 billion (Which equals approximately to US$350.7 million at the RUR/USD exchange rate established by the Central Bank of Russia as of the date of appraisal, June 30, 2010).

 

Is there a limit of the total number of shares to be repurchased by NCSP?

The aggregate amount of funds to be used by NCSP to buy shares from the shareholders exercising their put rights may not exceed 10% of its net asset value as of the date of EGM. For this purpose, the net asset value will be calculated on the basis of NCSP’s financial statements prepared in accordance with RAS on an unconsolidated basis as of the most recent reporting date. If the value of stock to be repurchased by NCSP exceeds 10% of the Net Asset Value, the stock will be repurchased on a pro-rata share basis. GDRs not accepted into the Buyback will be returned to participating GDR holders. To the extent rounding results in a fractional GDR being returned, cash-in-lieu of such fractional GDRs may be paid by the Depositary.

 

What are the procedures for GDR holders who want to participate in the Buyback? 

GDR holders wishing to participate in the Buyback will have to arrange to cancel their GDRs and to instruct the Depositary to deliver the underlying shares into the Buyback. Direct participants of Euroclear, Clearstream and the Depository Trust Company (DTC) can submit their instructions through the applicable clearing system. Beneficial owners of GDRs who are not direct account holders or participants of Euroclear, Clearstream or DTC must arrange through their broker, dealer, bank, or other nominee who is the direct account holder or participant of one of the clearing systems to cancel the GDRs.

 

Participating GDR holders will have to certify that they owned the GDRs as of the EGM record date of November 8, 2010 and either voted against or did not submit any voting instruction with respect to the Transaction Proposal. Such certification will be in addition to any usual certifications required by the Depositary for cancellation of NCSP GDRs, as per terms and conditions in accordance with the Deposit Agreement between NCSP and J.P. Morgan.

 

On or prior to the date set by the Depositary as the deadline for accepting GDRs for cancellation pursuant to the Buyback (“Buyback GDR Cancellation Date”), Euroclear, Clearstream and DTC will advise the Depositary of the total number of GDRs presented for participation in the Buyback. The Depositary will ensure that each instruction is supported by a Buyback certification as described above.

Subsequently, the Depositary will make arrangements through its Russian custodian to deliver all the underlying shares into the Buyback.

 

The Depositary will collect any RUB paid with respect to all shares accepted into the Buyback. After converting the funds into US dollars, the Depositary will remit payment to each participating GDR holder net of a GDR cancellation fee of $0.05 per GDR, Shares that are not accepted into the Buyback will be re-deposited with the Depositary’s custodian and GDRs subsequently re-issued by the Depositary to participating GDR holders.

 

What is the time period for the Buyback?

If the Transaction Proposal is approved at the EGM, NCSP will accept shares into the Buyback for 45 calendar days (ending on or about January 30, 2011) from the date of the EGM. To allow sufficient processing time, the Depositary expects to set the Buyback GDR cancellation deadline on or about January 24, 2011, approximately one week prior to the Buyback deadline expected to be established by NCSP for holders of ordinary shares.

 

Is it possible to recall GDRs previously submitted into the Buyback?

Prior to the deadline established by the Depositary for participation in the Buyback, an instruction to cancel GDRs in relation to the Buyback may be reversed. Subsequent to the GDR deadline, an instruction to cancel GDRs cannot be reversed.

 

When will GDR holders receive payment with respect to GDRs cancelled for the Buyback?

In accordance with the Russian law, payment to shareholders shall be effected in 30 calendar days after the end of the Buyback period. Consequently, it is expected that cash will be remitted by NCSP to the Depositary within this period (ending on or about March 1, 2011). The Depositary will convert all received funds to US dollars and remit each payment to a participating GDR holder through the applicable clearing system, Euroclear, Clearstream or DTC.