PETRA Diamonds said it had concluded an agreement with bondholders that paved the way for the conversion of up to $650m in debt to shares, equal to as much as 91% of the company’s entire share capital.
There are a number of conditions precedent still required for the scheme to go through which would save Petra Diamonds from insolvency. One is the approval of shareholders at a special general meeting which has been scheduled for January 13, 2021.
In the event shareholders reject the proposal – termed the lock-up agreement – Petra has installed a plan that allows it to raise $45m in funds. This debt would rank behind the debt raised with the firm’s South African lender group, it said.
Before the special general meeting, note holders will meet to vote on the scheme on January 8 ahead of the court sanction.
There is also an additional emendation in that the four largest bondholders with shares no less than 5% of Petra’s entire share capital, will be entitled to nominate a representative to Petra’s board who will serve as a non-executive director.
The lock-up agreement enables Petra to raise new money of $30m and convert debt to shares, but also asks of it to install new governance and cash flow controls.
This remarkable agreement follows a year of high distress for Petra after it said in May it could not pay the coupon on $650m in bonds. The company sought to sell assets, potentially resulting in the sell-off of the entire company, but backed away from that option after failing to attract sufficient bids.
Shares in the company have plummeted about 81% since the beginning of the year. On Tuesday, the company reported a taxed loss of $223m, including $91.9m in impairments, for the 12 months ended June.
Attempts to save Petra have taken place against a backdrop of depressed diamond market conditions. Petra said in notes to its full year results that the diamond market was vulnerable as a second wave of Covid-19 disease swept through buying centres, including Europe. According to a report by Bank of America Securities, recent rough diamond price increases did not imply a recovery in the long-term health of the market.
The diamond market recovered strongly in September with rough prices increasing between 19% and 118% compared to the lowest prices in the 2020 trough, said Bank of America Securities in its report.
It added, however, that the improvement might be a “bounce back” from the 10-year low achieved in the first half of last year and might not be “a reflection of the long-term attractiveness of the diamond industry”. It added, however, that it expected a 10% year-on-year increase in the rough price index of 2021.
“The underlying demand for polished diamonds should rebound as economies reopen, but midstream structural challenges could offset the positive impact for miners,” it said. “Diamond inventories, midstream financing, and margins remain key concerns.”