Congratulations to some institutional owners of conve rtible debentures issued by Canadian Royalties Inc. because of their decision to reject a less-than-satisfactory offer from Jien Canada, the joint venture formed by Jilin Jien Nickel Industry and Goldbrook Ventures Inc.

The 7% convertible unsecured debentures were issued back in 2008 when Canadian Royalties raised $137.5-million and called for the payment of 101% of principal amount of each debenture in the event of a change of control for the Quebecbased mining and exploration company. But Jien Canada offered a mere 80% or $800 per $1,000 principal amount. As well -- and provided that holders of more than two-thirds of the outstanding debentures tendered -- it planned, after the initial take-up to amend the trust indenture and offer 80¢ on the dollar to the holdouts.

That approach stands in contrast to Jien Canada's initial offer made in August when debenture holders were offered 60¢ on the dollar but the refusniks, provided certain conditions (such as acceptance by more than 50.1% of the holders) were met, would be offered 101% of the principal amount.

Accordingly an important principle was at stake: Either the trust indenture matters or it doesn't. And the institutions decided it was sacred. 'The institutions deserve the credit," said Vic Alboini, chief executive of Jaguar Financial, an investment firm that marshalled a group of institutional investors into not tendering to Jien Canada's offer.

"There is the precedent nature of the transaction," said Alboini, noting debenture holders deserve to get paid 101% of principal amount given the change of control and given that Canadian Royalties is solvent. "If they don't get paid what they deserve, this would be a huge negative precedent."

And the institutions stayed away. Before the offer, three entities, two from Quebec and one from Australia, had agreed to tender. Those three institutions owned $78.873-million of the debentures -- or 57% of the outstanding. When the offer expired on Tuesday, Jien announced it had received the nod from holders of $82.837-million principal amount -- meaning holders of $3.964-million principal amount tendered. Given that the total outstanding amount was $58.627-million the numbers mean that holders of less than 7% of the outstanding signed on.

The day before Jien Canada's takeover offer expired, Alboini offered a two-part "win-win" solution: Those institutions that had either signed lockup agreements or agreed to tender would receive 80¢ on the dollar, while the holdouts would receive 101%.

Given that Jien Canada has extended its offer until Nov. 10 and given that Jien has not taken up or paid for any of the shares that were tendered, how is the situation going to be resolved? There are three possibilities: Jien doesn't reach its required minimum, in which case it walks away and the takeover doesn't proceed; Jien (which already has a stake in Canadian Royalties and Goldbrook, which owns the adjacent property) amends its offer and agrees to pay the debenture holders 101% of the principal amount; or the institutional investors tender, allowing Jien to reach its minimum. Alboini said "based on his discussions, the debenture investors are absolutely opposed" to doing that.

Alboini feels the situation can be resolved by the common shareholders accepting less and the debenture holders being offered what they are entitled to receive. He believes there is some incentive for that to occur: In the event that Jien Canada loses and debenture holders then convert their stake to equity, common shareholders would face massive dilution.