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Petra Diamonds moves towards $650 million debt restructuring – sources

‘The bond is 33 cents on the dollar and bondholders will have to decide what to do, convert the debt into equity or not,’ one banking source said.
The company's share price is headed for a fourth year of losses, having fallen 74% so far in 2020. Image: Shutterstock

London-listed diamond miner Petra Diamonds is working towards restructuring its $650 million debt, as the challenges facing an industry assailed by synthetic rivals are complicated by the coronavirus pandemic hitting demand, sources said.

The company, with a small market capitalisation of 19.83 million pounds ($24.55 million), announced in February it was looking at strategic options in relation to its debt due in 2022 with the help of investment bank Rothschild. It had launched a debt reduction programme last year.

Sources now say that Petra, which extended the terms on its debt in 2017, is preparing to talk to bondholders again.

“The bond is 33 cents on the dollar and bondholders will have to decide what to do, convert the debt into equity or not,” one banking source said.

There could be a haircut taken by the lenders, including investors who bought the debt in the public market, so should the bondholders convert the debt into equity they would still have ownership of assets, another source said.

Petra declared a force majeure at the Williamson mine in Tanzania and scaled down operations to a minimum level in South Africa, as diamonds prices are depressed and sales halted by the global coronavirus lockdown.

Increased liquidity and flexibility on when to pay back its debt could give Petra more time if the lockdown is extended and there’s no cash coming in, a second source said.

Investment banks however are increasingly reluctant to extend credit to diamond producers, as inventory is not being sold and defaults are possible, the source added.

The company declined to comment.

In an update to the market on April 9, it said it was in talks with its lenders to access ZAR1 billion ($54.95 million) in credit and it would fully draw down on its working capital facility of R500 million.

“We are concerned about oversupply of rough diamonds following the reopening of economies as a lot of inventory could potentially be flooded into the system and the market might not be able to absorb all of it thereby resulting in increased pricing pressure,” Citi analysts said in a note.

The company’s share price is headed for a fourth year of losses, having fallen 74% so far in 2020.

Coronavirus is a new threat to the diamond industry, which has already been hit by lower demand from China, the world’s second largest market after the United States, following a prolonged trade war and anti-government protests in Hong Kong in 2019.

Apart from problems in China, some analysts have also blamed the increased importance of laboratory-grown stones for price weakness in the diamond market.

Man-made diamonds require less investment than mining natural stones and can offer more attractive margins.

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Bond holders ONLY chance of getting some of their money back is to convert into equity. With the current market cap.(almost zero) it does not really matter what face blue they do it at, the market will let them know what it’s worth. In these markets the would be lucky to get 33c on the $. If the world slides into a protracted depression they will get nothing. If we see a V reversal (unlikely) they might get a nice recovery in their equity. What’s for sure is the company is commercially insolvent without a restructure. Risking a default could see them loose mineral rights

End of comments.

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