Implats to refinance balance sheet as metal prices languish

IMPALA Platinum (Implats) is to refinance its balance sheet after it today announced the terms of two convertible bonds which will replace existing convertible bonds that fall due in February 2018.

It will issue R2.6bn and $300m in convertible bonds at an interest rate of between 6% and 6.75% for the rand-denominated debt and 2.875% and 3.625% for the dollar debt. These new bonds fall due in 2022.

They will replace existing convertible bonds of R2.67bn and $200m which were structured at a slightly lower interest rate of 1% and 5% respectively. It means Implats will have an increase in interest cost of about R140m, according to estimates by Goldman Sachs.

“This should lead to a slight increase in interest expense but removes any near-term balance sheet risk,” the bank said in a morning note. “The 2018 CB redemption had started to come into focus given the downturn in commodity prices. We view this as a positive development for the equity,” it added.

After falling more than $600 per ounce from 2014 to 2016, the platinum price has continued to languish at around the $900/oz mark despite reports insisting there was a supply deficit in the system.

In February, Implats reported an interim headline loss of R71m compared with a headline profit of R53m in the six months to December 2015. In addition to sluggish metal prices, the group was also affected by safety-related work stoppages.

The bonds, which will be offered through an accelerated book-build, will convert into ordinary shares at an initial conversion price of between 30% to 35% above the reference share price. Final terms of the 2022 bonds will be announced after pricing on May 26.

Goldman Sachs said the refinancing was positive because it removed “… near-term balance sheet risk, especially in the context of a downturn in platinum group metal prices which had led to concerns that the company could potentially face issues regarding its 2018 convertible bonds”.

Implats was also in discussions to retain some R4bn in additional undrawn debt.