Altech looks to Macquarie for HPA mezzanine debt

Altech Chemicals is close to enlisting financial heavyweight, Macquarie, to provide USD$90m worth of mezzanine debt for its Malaysian High Purity Alumina plant, potentially avoiding issuing a large slab of stock to get its project into production.  In a London meeting held recently, Altech said Macquarie re-affirmed its interest in potentially providing the mezzanine debt for the project that could spit out over AUD$100m a year in free cash according to the company.

Altech said this week that Macquarie’s positive response in the meeting came on the back of the recent increased profile of planned lithium-ion battery plants being constructed in Europe and the industry’s preference for securing long-term battery materials supply.

It also said the proposed loan was subject to Macquarie satisfying due diligence, completing various internal approvals and inter-creditor arrangements with senior lender KfW IPEX-Bank in Germany.

Altech’s Malaysian HPA project that will draw its kaolin clay feedstock from Meckering in WA will be capable of producing an alumina product that can achieve 99.99 per cent purity, according to Altech.

The company said it has over 230 years of kaolin supply at Meckering, potentially making it an intergenerational business proposition – a proposition that will most likely give Altech’s lenders some comfort.

Altech has deployed a suite of innovative financing arrangements to secure the funding needed to complete construction of its processing plant in Malaysia.

The addition of USD$90m in mezzanine debt would be a real shot in the arm for the Perth-based company given the market’s skittish reaction to companies that look like they will need to issue huge chunks of shares to meet the equity requirements to build their projects.

The discussions with Macquarie are ongoing and come on the back of Altech securing senior project debt finance of US $190 million from the German Government-owned KfW IPEX-Bank – most of which will be guaranteed by the German Government under their guarantee scheme that rewards companies that use German businesses to develop their projects.

Whilst Altech has not announced the interest rate on its senior debt, it would most likely make a residential mortgage holder blush given that it comes with a German Government guarantee.

In order to secure the German Government senior debt guarantee, Altech locked in German-based contractor, SMS Group for a fixed price EPC contract of around US $280 million for the construction of the plant that is already through phase one and into phase two of the build.

Interestingly SMS were required to provide an output guarantee for the plant in order to secure the debt which it did – further de-risking the project.

Altech has already independently raised approximately A $39 million over the last two years to cover the initiation of construction at the Malaysian plant site.

The Iggy Tan led company appears to have done a remarkable job in putting all the pieces of the finance jigsaw together to breathe life into the project.

Even the final piece of the puzzle – an off-take agreement – has been shuffled into place for the project with Mitsubishi Australia Ltd committing to the first 10-years of HPA production off-take from the plant.

If Altech’s projection of an average annual free cash number at the project of US$76m a year allowing for sustaining capital and before debt servicing and tax is real, then it is quite possible that it could handle some serious mezzanine debt on top of its senior debt with the all-important resultant outcome of limiting the number of shares on issue.

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