Petra Diamonds to hand 91% of company to note holders after abandoning asset sale

PETRA Diamonds is to convert about half of outstanding loan note debt to shares which will hand some 91% of the firm’s enlarged share capital to note holders.

This is the upshot of months of negotiations with an ad hoc group (AHG) of note holders and its South African banks after Petra said in March it was struggling to pay coupons on $650m worth of notes. As part of the negotiations, the company had embarked on a formal sales process, but it also announced today the sales had been abandoned in the absence of decent offers. The sales process hadn’t progressed beyond its first stage, it said.

Richard Duffy, CEO of Petra Diamonds, thanked note holders, adding that the agreement had put the company “on a viable” footing. The company’s South African assets were back in production, but the Tanzanian mine, Williamson, remained in mothballs, although its reopening was being contemplated.

The essence of the agreement is that the note holders would contribute $30m in new money to the $650m structure of which a new total of $337m would be partially reinstated. The balance would be issued in shares equal to 91% of the firm.

In order to protect Petra from excessive overhang, note holders would be subject to a lock-in agreement to which the firm’s black economic empowerment partners would have to agree. Petra said it hoped to have the new structure in place by early November.  Shareholder approval was required at an extraordinary general meeting (EGM), to be convened before the end of the calendar year.

Petra calculated that including accrued coupon payments, some $699m in notes would be outstanding as of November.

Another aspect of the agreement with note holders is that new governance arrangements and cash flow controls would be installed.

The agreement brings to an end a turbulent period of Petra after an ambitious five million carats a year growth strategy incurred debt it couldn’t finally contain. The Covid-19 pandemic this year proved the tipping point for the company which was already struggling to reduce debt, a business optimisation programme introduced by new CEO, Duffy, notwithstanding.

Set against this balance sheet deterioration, shares in Petra were pummelled. The company is currently capitalised at £12.98m having lost about nine tenths of its value this year. The market reaction to today’s news was a near 10% share price decline.