Despite the heavy dilution of existing shareholders' stakes, it is understood that David McErlain, the chairman, has struck a better deal than other recent company debt- for-equity swaps. Those have seen ownership of overstretched companies transferred almost completely into the hands of creditors.
About pounds 45m of Anglo's pounds 250m debt is expected to be converted into ordinary shares at 10p per share. That compares with the current share price of 6p and would mean the issue to the banks of 450 million new shares, equal to 58 per cent of the enlarged equity.
In addition to the partial debt- for-equity swap, Mr McErlain's rescue plan, first put to the banks in December, envisages an issue of zero coupon convertible loan notes and the deferral of interest payments on a further pounds 50m of debts.
Preference shareholders are likely to be asked to convert their shares into ordinary equity.
Recent debt-for-equity swaps to heavily favour creditors have included Heron International. Three months ago the troubled property and petrol retailing group announced that its banks were to take 95 per cent of the company's equity in exchange for writing off pounds 400m of Heron's pounds 1.4bn borrowings.
MTM, the chemicals company that came close to collapse last year after a string of profits warnings, is also negotiating with its banks over a restructuring of its pounds 120m debts. Sources close to the talks, due to be concluded next month, say shareholders are unlikely to have more than a token say after the refinancing.
Anglo, which until last autumn was considering a takeover of British Coal, was forced to announce talks with its banks at the end of last year after it failed to sell non-core businesses. It had hoped to raise up to pounds 50m from disposals but found it impossible to obtain decent prices from potential buyers, which include the regional electricity companies.
The pressure of interest payments, combined with weak trading conditions, pushed Anglo into a pounds 22.7m loss for the six months to September. Operating profits of pounds 4.6m were swamped by interest payments of pounds 16.2m.
Repayments have remained stubbornly high because much of Anglo's debt is fixed at much higher interest levels than apply today. Analysts say a cap of about 12.5 per cent seemed prudent three years ago but is now a big cause of the company's problems.
Anglo's debts were built up in 1989 when the company acquired Coalite, the smokeless fuel business, for pounds 478m, largely funded by bank borrowings. Anglo had hoped to pay down its debts through cash flow and disposals but found it increasingly difficult to do so as the recession wore on.
'Management has battled long and hard with the banks,' one analyst said. The deal, he said, would give Mr McErlain, who owns about 12 per cent of Anglo, an incentive to keep going.Reuse content