Sources with direct knowledge of the situation said divestments would not be immediate, as the three founding oligarchs and their advisers focus on May 17 - the date by which they have to announce to London investors whether they will bid.
Any firesale by the three founders - Alexander Machkevitch, Alijan Ibragimov and Patokh Chodiev - would also come up against a market where buyers for large, complex mining assets such as ENRC’s Brazilian iron ore development are scarce.
But the sources said sales could follow a deal, as the founders seek to pay back what could be onerous credit lines and ENRC retreats to its core assets and low-cost Kazakh base - still the source of most of its output - after an acquisition spree that left it $5 billion in debt.
ENRC’s founders said on April 19 they were working on a buyout plan as part of a consortium including the Kazakh government, calling time on a six-year London adventure after governance woes, corruption probes and a cooling global economy left its shares near an all-time low.
The trio are now lining up financing to buy the 44 percent in ENRC that neither they nor the government own - worth $2.4 billion at current prices. Two sources said they would likely be backed by Russia’s VTB and Sberbank, ENRC’s largest lenders - working alongside adviser Societe Generale. The Kazakh government could also contribute.
“It is all about the financing. Can they get the money together?” said a third source with knowledge of the situation. “They are buying a company with a lot of debt and cannot just leverage it up.”
KAZAKH GOVERNMENT ROLE
The financial position of the individual founders is unknown and, as they are not directors, it is unclear whether or not they have pledged their ENRC stock to support loans.
However, the government’s role - combined with bitterness over the trio’s London experience - is expected to fuel a push to whittle down ENRC’s presence abroad and concentrate on its cash-generating Kazakh base, which employs more than 80 percent of its 79,400 employees and is the main concern for the Kazakh government.
“The founders feel they have been misrepresented. They believe they are the victims of bias in (London), and that a lot of the (whistleblower) investigations are without merit,” one of the sources said, pointing to woes that the trio feel “directly resulted from being public”.
“The government’s focus is the Kazakh, core assets.”
The sources cautioned that ENRC’s founders were not likely to start an asset firesale - not only because of a lack of buyers, but also because of internal and UK official investigations into allegations of corruption that have involved some of ENRC’s overseas operations.
“These assets are quite compromised due to the (UK Serious Fraud Office) investigation. I think the main aim is to do the offer for the company - and then look at assets,” said Stanislav Chuyev, analyst at Visor Capital in Almaty.
Since its 2007 London listing, ENRC has spent more than $6 billion expanding beyond its Kazakh core ferrochrome and iron ore operations into places such as Brazil and the Democratic Republic of Congo. More than $5 billion of that was on assets in development that have generated virtually no cash yet.
The sources differed as to whether copper assets in Congo - a big bet for the group - would be sold, given their potential. But Mozambican coal and iron ore operations are more likely candidates, with the latter potentially attracting buyers such as Glencore.
Long seen as a suitor for the whole group, the commodities trader is one of few major international metals producers active in Kazakhstan - though it is now currently digesting the purchase of Xstrata.
One major unknown is the position of Kazakhmys, ENRC’s single largest shareholder with a 26 percent stake.
The Kazakh government and former chairman Vladimir Kim hold controlling stakes in Kazakhmys, and analysts say balance sheet pressures could tempt it into a deal it would only recently have dismissed. Equally, the government could see the germ of a national mining champion.
“When such information comes out, there is usually a long procedure,” Kim told Kazakh television when asked about the bid. “Let this come to a conclusion, and we will take a decision.”
Analysts and investors have pointed to what is likely to be a bid at a modest premium to a share price up over 17 percent since the bid was announced, with few rival buyers around. But they said a rock-bottom offer would also damage Kazakhstan, just as the government tries to lure investors with new exploration licences.
“The actual minority investor base is very small … they do not need to come up with that much cash to pay a reasonable premium,” one of ENRC’s top 20 investors said.
“If this went out at 250 pence (per share), then everyone would say that they would never ever look at anything from Kazakhstan again. The government will not want that to happen.”
ENRC was trading on Tuesday at around 270 pence.