Update Mining company Fortescue Metals Group has rejected a claim for damages from its third largest shareholder in relation to a 2006 loan agreement.
Fortescue was hit by a writ from Leucadia National Corporation, a New York hedge fund, seeking to stop Fortescue issuing subordinated loan notes under an existing note deed poll.
The bid by Leucadia, which owns about 9 per cent of Fortescue, was an attempt to have a court re-write an agreement in its favour, Fortescue said in a statement today.
It is understood an agreement between Leucadia and Fortescue allows the hedge fund to reap 4 per cent of revenue after royalties from Fortescue’s Cloud Break and Christmas Creek iron ore mines until 2019.
The money is interest on a $US100 million ($110 million) subordinated loan note made to Fortescue in 2006.
But Fortescue has interpreted the working of the note deed poll as implying that the 4 per cent would be paid to all noteholders, not just Leucadia. So if Fortescue issued more notes, the 4 per cent payment to Leucadia would be diluted and the hedge fund would lose out.
In the event that Fortescue could raise funds like this, it would effectively be able to raise expansion capital free from any extra interest.
‘‘Fortescue denies all the allegations made by Leucadia National Corporation in its writ,’’ Fortescue said today. ‘‘Fortescue has raised the prospect of issuing further notes, but has not taken any step to do so."
The writ was issued in the Supreme Court of Western Australia.
Claims for damages by Leucadia were ‘‘misconceived’’ Fortescue said, as no new notes had yet been issued.
‘‘If Leucadia considered Fortescue was not entitled to issue further notes, it should have explained to Fortescue its interpretation of the note deed poll and subscription agreement,’’ Fortescue said.
Perth-based Fortescue said its ongoing funding strategies were not reliant on the outcome of the legal process begun by Leucadia.
In early afternoon trade, shares in Fortescue were trading down 2 cents at $4.87.
AAP