15.05.2013
Advisers Morgan Stanley, Deutsche drop miner ENRC

Advisers Morgan Stanley, Deutsche drop miner ENRC

* Morgan Stanley, Deutsche Bank resign as brokers

* ENRC says severe weather hits iron ore processing, mining

* Copper boosted by ramp up at Frontier mine

* Says cost inflation in line with guidance, but debt rises

Morgan Stanley and Deutsche Bank have quit as brokers to embattled miner ENRC, a highly unusual step that adds to the woes of a company facing allegations of fraud around its African and Kazakh operations.

The two investment banks, advisers since ENRC’s 2007 listing, resigned as brokers late last month, breaking links with a company facing a probe by UK prosecutors, it emerged on Thursday.

ENRC - which is also facing a potential buyout bid from its founders and the impact of a severe Kazakh winter on iron ore production - is now seeking replacements.

“After many years with the company Morgan Stanley and Deutsche have stepped down in recent weeks as brokers,” ENRC said in a brief statement, adding it was reviewing a “final short list” before deciding on new advisers.

Corporate brokers - a role banks play in Britain but few other countries - are companies’ eyes and ears in the market. Banks clamour for the role, which, though less than lucrative, can pay off in fees for knock-on roles advising on share sales, for example, or other deals.

Morgan Stanley and Deutsche Bank took $64 million in fees out of a combined $120 million earned by four banks from ENRC’s market debut, according to Thomson Reuters data.

Some investors and former directors say not enough questions were asked at the time of the listing and some even say that it should not have taken place, given the allegations now facing the company and other issues around its governance.

The other two banks involved in the listing were Credit Suisse and ABN Amro Rothschild. Morgan Stanley and Deutsche declined to comment.

Shares in ENRC - already down on Thursday after the group reported weaker than expected production in key commodities in the first quarter - sank more than 6 percent on the news.

At 1340 GMT, the stock was down 3.9 percent at 291.5 pence.

As well as the UK investigation, the company is battling corporate governance concerns, not helped by the departure of its chairman last month, as it awaits a buyout offer from its trio of billionaire founders.

Alexander Machkevitch, Alijan Ibragimov and Patokh Chodiev together with the Kazakh government control more than half the company’s shares. They have said they are considering an offer and have until May 17 to declare their intention to bid.

ENRC’s independent board members are being advised on the potential bid by Lazard and Credit Suisse.

OUT IN THE COLD

ENRC’s chief executive Felix Vulis gave no news on the potential takeover offer in a call following its results.

He said the company would prove it applied adequate procedures “when all the noise and hyperbole is stripped away” and that many of the allegations concerned issues that were resolved before the IPO.

“The board is fundamentally aware of and accepts the extra scrutiny that the company faces… as a result we have introduced compliance systems which work,” he said, in a conference call in which he took no questions.

The start of the year is typically weak for ENRC, which has the bulk of its production in Kazakhstan and Russia, but this year’s output was hit by a particularly severe Kazakh winter.

Temperatures of as low as -46 Celsius and winds so strong that rail wagons were blown off the tracks helped cut iron ore extraction by 9 percent year on year and volumes of saleable concentrate of the steelmaking ingredient by 24 percent.

reuters.com