Harbinger Capital Partners LLC, the New York-based hedge fund run by billionaire Phil Falcone, is seeking to sell shares in Brazilian iron-ore producer Ferrous Resources Ltd. to raise cash for loan repayments.
Harbinger Capital Master Fund’s 19.5 percent holding in Ferrous will be “marketed to investors immediately,” according to loan documents seen by Bloomberg News. The proceeds will be used to repay a $190 million loan Harbinger got Jan. 30 from Jefferies Group Inc., according to the documents. It didn’t specify whether Harbinger, owner of 26 percent of Ferrous, would seek to sell its remaining stake.
Falcone, whose hedge fund tumbled by almost half last year because of a troubled wireless venture, is paying 15 percent interest on the loan, according to two people with knowledge of the terms. Ferrous has been looking for a strategic partner to help finance its Brazilian projects since at least 2009, having shelved plans in June 2010 for a $400 million initial public offering in London because of fluctuating equity markets.
The fund values Ferrous at $3.13 a share, or $486 million for the stake held by the Harbinger Capital Master Fund, the documents that describe the loan show.
Harbinger’s interest rate is almost triple what the riskiest corporate borrowers pay, the people said last week. Mike Sitrick, a spokesman for Harbinger, declined to comment.
In December, Ferrous proposed a $2.3 billion takeover of rival MMX Mineracao & Metalicos SA, the Rio de Janeiro-based iron-ore producer controlled by Brazilian billionaire Eike Batista, according to a letter detailing the plan obtained by Bloomberg News. The companies held “several discussions” on a merger during the past 18 months, the letter shows. MMX said on Jan. 19 that it’s not interested in a Ferrous merger.
Ferrous is competing with miners including Anglo American Plc and MMX in expanding iron-ore projects in Brazil, the world’s second-largest exporter of the steelmaking ingredient, to meet rising Chinese demand. The company based in Belo Horizonte, Brazil, produced its first ore last year.
Ferrous appointed Jayme Nicolato Correa, a former mining director at Brazilian steelmaker Cia. Siderurgica Nacional SA, as chief executive officer to replace Mozart Litwinski, a person familiar with the situation said last week, declining to be named because there was no public announcement by the company yet. Litwinski resigned to dedicate more time to his family and personal business, Ferrous said on Jan. 19.
Ferrous has six mines in the largest iron ore producing region in Brazil, Minas Gerais state, and had $252 million in cash and no debt as of Sept. 30, the documents said.
Jefferies can liquidate collateral for the loan if shares in Harbinger Group Inc. (HRG), a publicly traded company that is 50 percent-owned by the hedge fund, trade below $2.81 a share for five consecutive days, according to the documents. It currently trades at $4.86.
Shares fell as much as 8 percent on the news and closed at $4.86.