Sibanye-Stillwater confirms closure of 2022 bond with share issue paying $354m balance

Neal Froneman, CEO, Sibanye-Stillwater

SIBANYE-Stillwater is to issue approximately 248 million shares settling the balance of a $450m bond which it used to help part finance the group’s $2.2bn acquisition of Stillwater Mining, a palladium miner, in 2016.

Some $354m in debt was settled in closing out the bond which had been due to mature during 2022.

Net debt to earnings before interest, tax, deprecation and amortisation (EBITDA) could be reduced to 0.22x if the bond was settled, the company said in August at its interim results presentation. Net debt to EBITDA was 0.55x as of June 30.

The proposed settlement of the bond represents a major turnaround in the health of the firm’s balance sheet given that the company once neared breaching the 2.5x net debt to EBITDA covenants set by bankers.

“The redemption of the bonds will further improve the leverage and capital structure of the group,” said Sibanye-Stillwater in a statement. “Furthermore, the redemption of the bonds eliminates interest costs and related income statement revaluation costs and volatility, materially reducing financing costs and outstanding debt,” it said.

Sibanye-Stillwater previously announced an interim payout of 15% of EBITDA, slightly lower than the planned long-term dividend policy, in recognition of the uncertain economics of the Covid-19 pandemic.

Neal Froneman, the firm’s CEO, said that dividends could only be expected to increase. “If we cannot create more value, then we will return it and we would exceed our dividend policy,” he said. “I suggest we will see a significant re-rating. We are rated well below our peer group and we know why we are there,” he said.

5 COMMENTS

  1. Hi All,

    This is bound to divide opinion of shareholders and analysts…

    What is evident is that Covertible bondsholders are scoring $773M for their $384M owed. Those bondholders who sold to SBSW at $50M for their $66M, will be kicking themselves!

    Herein lies the conundrum that is convertible bonds : When exactly to convert ?
    Corporate Finance says DO NOT convert until due , because as a convertible bondholder you have advantage over ordinary shareholders BUT share the same benefits! Furthermore, you are also a creditor , albeit of lower rank … thus can demand payment of coupon and principal!

    My take is that it all depends what happens from hereon until 26/09/2023 with SBSW share price…If it matches higher , then this is good decision by management, thus exercising this option at a cheaper price instead of higher price. The number of shares per bond are fixed by the indenture but adjusted for dividends paid. If the share price declines to say $2/sh ( conversion was set at $1,6580/sh) , then converting at $3,11/sh seems silly more so at SBSW request.

    On the balance of probabilities , I agree with management decision to exercise this option albeit rewarding the convertible bondholders handsomely. It does safe $6,53M/yr ( $348 x 1,875% /yr) , thus $19,6M ) until 2023 . But the issue is NOT Interest charge savings BUT eliminating the Debt at the top of the cycle , thus bolstering the Balance sheet for impeding downturn. There is NO other alternative because these bonds cannot be called for cash payment NOW…as SBSW only obtained 13% response the last time!

    If management had waited until 2023 , and the shareprice is > 1,6580/sh , then bondholders would have converted anyway , but with additional $19,6M in their pockets! if the shareprice cratered , they would have demanded their $384M in 2023! If the shareprice is substantially more than current $3,07/sh , then this would seem the most opportune time to have done the conversion…. SBSW success is a boon for those who were willing to bet on the company, convertible bondholders are thus entitled to share in the upside !

    Yours truly,
    GS

  2. I really haven’t looked at this article – just a fleeting glance, but one thing caught my eye – from your first paragraph: “248 million shares settling the balance of a $450bn bond” – are those numbers correct? Maybe it is or maybe GS pointed it out – like I said not read yet

  3. Surprised you have not commented one way or other, so I guess it doesn’t really matter, though the Sibanye website mentions “..exercised its option on its USD450,000,000 1.875 per cent convertible bonds due 2023..”. Is that not USD450 million and not the USD450 billion you quote?

    • Hi – Yes, it’s $450m not the $450bn I wrote.
      I’ve corrected the mistake – thanks for pointing it out. Appreciated.

      David

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