Kazakhstan's BMB Munai agrees in principle to restructure convertibles

By Caroline Salls

Pittsburgh, Sept. 13 - BMB Munai, Inc. has reached an agreement in principle with the holders of its $60 million principal amount of 5% convertible senior notes due 2012 on general terms for the proposed restructuring of the notes, according to a company news release.

In connection with the proposed restructuring, the company and the noteholders have executed a supplemental indenture, extending the terms of the redemption rights available to the noteholders.

Indenture change

Under the original indenture, the noteholders had the right to redeem the notes at any time from June 13 to Sept. 13.

Supplemental indenture No. 2 grants the noteholders an additional right to require redemption of the notes upon two days' notice anytime after Sept. 13 but on or before Dec. 31.

In exchange for the additional redemption right, the noteholders agreed they will not exercise any redemption right before Oct. 15. The noteholders also agreed to waive existing defaults until the earlier of Oct. 15 or the date they may exercise the new redemption right.

Notes security

Under the proposed restructuring, BMB Munai will secure the notes.

The security will include a first-priority pledge of the company's equity interest in wholly owned subsidiary Emir Oil, LLP; a guarantee of payment of the notes by Emir Oil and any future subsidiary of the Emir Oil or the company; the guaranty obligation of Emir Oil to initially be secured by its exploration license; and a pledge of the production licenses for the Aksaz, Dolinnoe and Kariman fields once they become pledgable and the pledge over the exploration license ceases to be effective.

In addition to securing the notes, the company will agree to payment terms changes.

Payment terms

BMB Munai will make a $1 million cash payment toward the principal balance of the notes when the restructuring takes effect, which will result in an adjusted principal amount of $61.4 million.

The company said the cash payment and the increase in the principal amount reflect an adjustment based on the value of an unexercised third put option.

In addition, the coupon rate of the notes will increase to 9% from 5%. The company also agreed to an additional coupon that will be payable if the product of the price of Brent and BMB Munai's production volumes exceed threshold levels to be agreed upon.

The company said it will agree, beginning six months after the issue or restructuring date, to make quarterly principal amortization payments based on a percentage of excess cash flows. This percentage is still being negotiated.

The restructuring parties also plan to amend the maturity date, redemption and conversion provisions of the notes. Specifically, the new maturity date will be July 13, 2013.

New put option

Also under the proposed restructuring, the noteholders would be granted a new put option, exercisable one year before the new maturity date. The conversion price of the notes will be reduced to $2.00 per share, subject to adjustment events, and the minimum conversion price will be reduced to a floor of $1.00 per share.

In the event of a change in control, the noteholders will have an option to redeem their notes at a price equal to 110% of the notes or to convert their notes to company common stock.

BMB Munai will have the option to redeem the notes if the closing market price for the company's stock exceeds 200% of the then current conversion price.

Once definitive documents are executed, the noteholders will have the right to appoint one board member to the company's board of directors, who will also sit on the compensation committee. The noteholders will also be granted certain registration, listing and tag along rights.

The company said it will agree to restrictions on incurring new debt, uses of proceeds from any new debt or equity offerings, capital expenditures, dividends and other distributions, disposal of assets, investments and affiliate transactions and other and customary covenants acceptable to the noteholders.

BMB Munai has agreed to maintain its NYSE Amex listing of its common stock.

The restructuring is subject to due diligence and negotiation and execution of definitive agreements.

If those agreements are reached, the restructuring is expected to be contingent on regulatory and shareholder approval and other conditions.

BMB Munai is an oil and gas exploration and drilling company based in Almaty, Kazakhstan.

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