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Petra Diamonds hands itself over to lenders

Restructuring deal will see 91 per cent of shares in Cullinan owner held by creditors after new equity is issued
October 20, 2020
  • Poor mine performance and weak diamond market mean Petra has had to pull the plug on independent survival hopes
  • Deal with lenders sees shareholders left with just 9 per cent of the company 
IC TIP: Sell at 1.7p

Petra Diamonds (PDL) shareholders will be left with around 9 per cent of the miner’s issued shares in a deal designed to save the company. A sale process announced mid-year did not bear fruit, and $650m in loans coming due in May 2022 have become the main problem. Petra, owner of the famed Cullinan mine South Africa, said that it would split the debt into $307m of new notes, with the remaining debt that is converted into equity destined for the bondholders, with the result that they will end up with 91 per cent of Petra Diamonds’ equity, with the remaining 9 per cent being apportioned to existing shareholders.*

Petra needs shareholder support for the restructuring, although the company has already said that it would bring in “alternative structures” to get the deal done if investors vote it down. 

A weak diamond market and production issues at its South African mines contributed to the stretched financial situation - but the high debt had been a red flag on the company for some time. The company could not pay the interest on the $650m loan in May. 

The value of Petra's stock at market-open on Tuesday was under £15m, after an 85 per cent fall since January. Even that 2020 high of 11.1p was down almost 90 per cent on two years earlier. 

The company said it had not received any viable takeover offers during the four-month period in which it had run a formal sales process. A recent picture of the balance sheet is not available, as the FY2020 results were delayed from August to November in keeping with the Financial Conduct Authority’s (FCA) Covid-19 rules. A trading update in July said that tenders had been cancelled and that roughly three weeks of production had been lost at the Finsch and Cullinan operations. 

Petra chief executive Richard Duffy said the deal with lenders would provide “the business with a stable, deleveraged capital structure that will ensure [its] short and long-term viability”. 

The lenders will be able to appoint four directors to the board, who will be part of a committee that will “monitor significant capital and other investments and recommend their adoption to the full board”. 

Petra has been in trouble for a long time. Through this arrangement, shareholders will end up with a smaller proportion of a still-struggling company. Sell. 

Last IC View: Sell, 9.8p, 27 Jan 2020

*This article was updated on 26 October 2020. The article previously stated that the remaining debt would be turned into equity which would go to four major South African lenders.