Fortesque Metals Group’s Andrew Forrest is set to rape New York investment fund Leucadia with additional subordinated-loan notes. The move has brought back memories of Forrest’s Anaconda mismanagement resulting in a return to bond holders of less than 2c on the dollar.

Fortescue’s Future and financing plans for its aggressive Pilbara iron ore expansion plans into sharp focus.

Leucadia, Fortescue’s third-biggest shareholder, with an 8 per cent holding, served a writ on Fortescue earlier in the week seeking to prevent it issuing any extra subordinated notes, fearing that any additional notes would dilute the royalty flow attached to its existing $US100 million ($A110 million) note, the move of course is the same as the destruction of bond holder rights at Anaconda.

Macquarie’s equities desk said the Leucadia action ”highlights Fortescue’s requirement for external funding to finance its aggressive expansion plans”. It estimates Fortescue needs ”peak” funding of $US2 billion on top of the $US950 million in senior debt repayments that fall due over the next three years.

Such an estimation if true would mean Fortescue should be worth less than $1 per share.

Fortescue said yesterday that while it had raised the prospect of issuing further notes, it had not taken any step to do so. But it added that it believed that on the Twiggy penned dodgy wording of the note deed poll, it was able to issue further notes, and there is no doubt they will.

”It is therefore a proper and appropriate course of action for Fortescue to investigate,” the company said.

It went on to describe the Leucadia action as ”pre-emptive” litigation, saying a claim for damages at this stage was misconceived as no new notes had been issued.

”Leaving aside its rectification claim, Leucadia appears to be seeking an opinion from the court when no damage has been suffered,” Fortescue said.

Leucadia clearly sees the writing on the wall as the ever diluting Forrest appears to set to ruin the base Fortescue has built.

The issue of additional notes would dilute Leucadia’s interest as the cash-flow pool that its 4 per cent (pre-royalty) note is calculated on would be shared by the holders of any new notes.

Fortescue said its funding strategies did not rely on the outcome of the legal process started by Leucadia, so beware additional share issues here.

It said its plans for expansion beyond 95 million tonnes of iron ore production remained subject to the resolution of the proposed minerals resource rent tax and board approvals.

Shayne Heffernan www.livetradingnews.com

Posted by Shayne Heffernan on Sep 4th, 2010and filed underASEAN News, Asia, Commodities, Commodities, Credit, Economics, Economy, Emerging Markets, Equities, Equities, Exclusive, Foreign Exchange, Forex, Futures, Gold, Interest Rates, Latest News, Limelight, Market, Markets, News & Events, Rates & Bonds, Shayne Heffernan, Stocks.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site