Petra Diamonds warns shareholders they need to back $178m rights issue
London — Mining firm Petra Diamonds aims to raise $178m to help cut its debt burden, and warned it could run low on working capital and breach its debt covenants if shareholders do not back the proposed rights issue.
Petra, which last month finalised an agreement with its lenders for a waiver of its December 2017 debt covenant and a resetting of debt agreements for this year, said it would offer new shares at 40p.
That marks a 35.6% discount to the theoretical ex-rights price of 62.15p calculated in reference to the closing price of its shares on Wednesday.
Shares in the London-listed company tumbled as much as 19% after the company’s statement.
"If the resolutions to be proposed at the special general meeting are not passed, the rights issue will not take place and the company will not receive the net proceeds from the rights issue of approximately $170m," Petra said in a statement announcing the new share issue.
"In such circumstances, the company is of the opinion that the working capital available to the group will not be sufficient during the working capital period based on the reasonable worst-case scenario."
Investors will vote on the rights issue in a special general meeting set for June 13.
Petra has been hit by production delays, strikes, a confiscated consignment of diamonds and a strong rand, and has sought waivers from its lenders three times.
There were also no refunds on value-added tax (VAT) from the Tanzanian government.
Petra said it would use up to $120m from the cash call to pay down debt and the balance would buffer its working capital against the strength in the rand.
Petra’s debt had risen to $622m as of last month, from $500.2m at the end of March 2017.
The company targets a reduction in the leverage of two times, or less net debt to core earnings or ebitda (earnings before interest, tax, depreciation and amortisation) by the end of 2020.
The fund raising is underwritten by RBC Capital Markets, BMO Capital Markets and Barclays.
"We expect the share price to trade down towards the ex-rights price, but our view is that once the refunding is completed price appreciation is likely," said Canaccord Genuity analyst Des Kilalea.
"This is because the risk from the balance sheet will be reduced and returns from improved operations will flow through to equity."