BMB Munai needs to complete sale to fund retirement of convertibles

By Caroline Salls

Pittsburgh, Aug. 15 - BMB Munai, Inc. does not expect to have enough funds to retire its 10.75% convertible senior notes when due in 2013 if it does not complete the $170 million sale of its interest in Emir Oil to Palaeontol, according to a 10-Q filed with the Securities and Exchange Commission.

The company said it will not be able to complete the sale if it fails to attain commercial production rights on the Kariman, Dolinnoe and Aksaz fields.

According to the 10-Q, there is substantial doubt that the company will be able to continue as a going concern if it does not complete the sale.

If it does not complete the sale, BMB Munai said it will likely be required to consider other liquidation alternatives, including a liquidation of its business under bankruptcy protection, because it will not have enough cash to repay the convertibles or continue operations.

If it does complete the sale, the company said it will have no continuing operations that result in positive cash flow, also raising substantial doubt about its ability to continue as a going concern.

When the sale closes, the company will use a portion of the proceeds to repay its the convertibles and to pay transaction costs and expenses.

BMB Munai said it also intends to make an initial cash distribution from the sale proceeds to stockholders in the estimated range of $1.04 to $1.10 per share upon closing.

The company said it plans to make a second distribution to stockholders that could range up to $0.30 per share following termination of an escrow, subject to the availability of funds to be released from the escrow, actual costs incurred and other factors.

Price reduction clarification

The company said its common stockholders voted to approve a conversion price reduction on June 2. Specifically, the shareholders approved reducing the conversion price of the convertibles to $2.00 per share from $7.2094.

However, BMB Munai said in the 10-Q that the conversion price reduction may also be subject to approval of Kazakhstan's Ministry of Oil and Gas.

Although the company said it has agreed to seek clarification from the ministry as to whether its approval of the conversion price reduction is necessary, BMB Munai is not obligated to seek clarification until the ministry has approved the sale.

If the ministry approves the sale, the company can put off seeking the clarification to the extent it believes seeking the clarification would adversely affect the approval granted.

If the ministry says that approval is not necessary, the company said it will execute a supplemental indenture to complete the conversion price reduction.

If the ministry says its approval is required, BMB Munai said it will be required to seek that approval and to complete the conversion price reduction by the earlier of 10 business days after the ministry approves the reduction or the date it is determined that the approval is not required and Dec. 30.

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

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