BONDHOLDERS left Impala Platinum (Implats) disappointed after largely refusing to take up the partial early redemption of a R3.2bn bond, said BusinessLive.
“We are disappointed that we could not secure a bit more, but we expected a low uptake given a positive PGM (platinum group metal) outlook and view among many bondholders that the company and equity is well positioned to outperform over the ensuing period,” Implats spokesman Johan Theron told the publication.
“So, while we see significant value in buying back the bonds, holders similarly recognise significant value in holding these bonds toward maturity,” he said.
Implats, South Africa’s third-largest source of PGMs, launched the opportunistic offer to holders of the convertible bond that matures in 2022 to terminate R1.625bn of the issue that carries interest of 6.375% and is one of the last major debt instruments on the company’s cash-flush balance sheet, said BusinessLive.
According to the initial offer, Implats will pay R5.74bn to retire half the rand bond early, with expectations that the cash payment to shareholders could rise as high as the R6.3bn maximum. However, bondholders opted to largely decline the offer leaving the rump of R3.009bn. Implats had hoped for a 15% uptake, said BusinessLive.
Implats spent R938m for the early redemption.
The underlying reason for the limited uptake of the offer was the increase in Implats’s shares this week, which meant bondholders who had short positions on the company’s shares to cover their risks on the bond, could not square their positions. Holding a short position on a company’s shares is essentially a bet on a lower price in the future on that stock, said BusinessLive.
“Despite the interest expressed by a number of bondholders to participate in the invitation, the share price appreciation limited their ability to cover their short positions, which they had in place over the ordinary shares in order to hedge their equity exposure under the bonds,” said Implats in a statement.
So far in 2020, Implats’s shares have risen 30.4%, outperforming its traditional rival Anglo American Platinum, the shares of which have fallen nearly 7% in the year to date as it struggled with its metals processing circuit, said BusinessLive.
Implats has the option for an early redemption in June, which it is highly likely to enact, removing expensive debt from its balance sheet while prices for PGMs are high and cash is pouring into the company.
By the end of the 2020 financial year in June, Implats had grown its net cash position to R5.7bn from R1.1bn the year before. It repaid R6.7bn of debt that year. Implats wants R20bn of cash on its de-geared balance sheet, giving it the firepower to ride out any downturn in PGM prices.
