With the arbitration award in favor of Sunflag, the stock valuation has become very much attractive.
Extracts from AR of LLoyds Metal
"An Arbitration Award was passed by the Sole Arbitrator Mr. Justice A.R. Joshi (Retd.) Former Judge, Bombay High Court, under the Arbitration and Conciliation Act, 1996 on 22nd April, 2022 in the matter of arbitration between Sunflag Iron & Steel Company Limited (“Sunflag”) and Lloyds Metals and Energy Limited (“Company”). The matter in nutshell is that the Company and Sunflag from the year 2004 have been entering into various understandings
and contracts to have joint and equal control on the iron ore mine of the Company and sharing of the iron ore extracted in the ratio of 60% and 40% respectively in return Sunflag
assisting the Company with the required funding for capital and operational expenditure.
However, for reasons not attributable to both the parties the said arrangements could not take place and the mining operations could not be commenced. During this period Sunflag had advanced funds to the Company towards the operation and commencement of the mine. In the year 2016, the Company started mining operations with minimal production; however, the Company could not share the iron ore extracted with Sunflag for various reasons. The Company and Sunflag were engaged in discussions to resolve the issue amicably but the same could not be resolved. Sunflag then invoked the arbitration clause and initiated the
arbitration proceedings. The claim(s) made by Sunflag were as follows:
- Repayment of the amount paid by Sunflag along with the interest @4% + SBI PLR compounded annually amounting to Rs 312 crores;
- A demand of Rs 1,433 crores towards Sunflag’s right of 40% mineral extracted at cost over the life of entire mining lease period i.e., 40% of 75 million tonnes, i.e., 30 million tonnes with a margin of Rs 2000, per tonne amounting to Rs 6,000, crores and when discounted to the present value the same worked out to Rs 1,433 crores; and 3. 32% of the equity share of the Company considering the net worth attributable to the mine being 80% of net worth of the Company, and Sunflag having the right of 40 % of the mine. All the above claims of Sunflag were refuted by the Company and various counter claims were also made. After hearing
the arguments of both the parties, the learned Arbitrator has passed an Arbitration Award dated 22nd April, 2022 and an Additional Arbitration Award dated 28th April, 2022. The gist of
the Award is as follows:
The Company was liable to pay Rs 900 crores to Sunflag (i.e., Rs 312 crores on account of refund of advance along with accrued interest and the balance Rs 588 crores as full settlement of all other claims). Given the amount being large, the Company proposed
to settle the said liability, subject to the approval of the Shareholders and in accordance with applicable laws, by issuing six crores (6,00,00,000) 0% interest Optionally Fully
Convertible Debentures (“OFCD”) which will settle entire liability of the Company on the basis of proposed issue price of Rs 150/- (Rupees One Hundred and Fifty only). The OFCD would be converted not before 9 months but, not later than 18 months at a conversion ratio of 1:1. This proposal has also been agreed by Sunflag and they will be termed as the Non-Promoter of the Company. Further, the Company is liable to pay an interest at the rate of 9% p.a. on the face value of the OFCD’s if the Company fails to convert the OFCD’s and in the event the proposed allottee does not exercise the conversion right within the 18 months conversion period, then the OFCD’s will be redeemed by the Company within 48 months from the date of allotment and interest will accrue at 9% p.a. on the face value of OFCD’s from the expiry of the conversion period of 18 months until redemption of the OFCD’s.
The Company shall commence the process of the proposed issuance of OFCD’s and obtain necessary approvals and compliances with respect to the same."
Disclosure from levels of 80 since last more then 1 year and added more recently at around levels of 85.
The current Share Price of Llyod Metals is around Rs 229 and hence the investment value will be 1374 Cr as against present market cap of Rs 1900 Cr of Sunflag Iron.