Creditors to take control after Petra secures restructuring deal

Shares in Petra Diamonds lost their sparkle on Tuesday after the mining company abandoned plans to sell the business in favour of a debt-for-equity swap.

Under the deal, Petra’s $650m of 7.25% senior secured second-line notes will be partially reinstated as new notes, with holders contributing an additional $30m in new money. In total, the new notes are expected to amount to around $337m, Petra said.

The remainder of the notes will be converted into equity, which will result in noteholders owning 91% of Petra’s enlarged capital, leaving shareholders with just 9%.

As at 1045 BST, shares in London-listed Petra - which operates mines in South Africa and Tanzania - were off 2% at 1.62p, after touching 1.54p earlier in the session.

Chief executive Richard Duffy said the restructuring put Petra on a "viable footing going forward for the benefit of all our stakeholders".

"The board believes the agreement in principle announced today provides the business with a stable, deleverage capital structure that will ensure the short and long-term viability of the company. Today is an important milestone for Petra."

The coronavirus pandemic saw consumer demand for diamonds slump and temporarily shut mines worldwide. It also hit Project 2022, Petra’s debt reduction programme, which it launched in 2019.

In June, Petra put itself up for sale but received no viable offers, it said on Tuesday.

Yuen Low, analyst at Shore Capital, said equity shareholders had been "shafted".

"Under-pressure Petra has arrived at an agreement in principle with creditors for a long-term recapitalisation solution that will effectively see existing shareholders diluted to next to nothing.

"Adding salt to existing shareholders’ wounds, Petra noted that their residual 9% will be subject to dilution as a result of standard management equity incentive arrangements. In our view, such incentive arrangements are now inappropriate and should be cancelled."

All of Petra’s South African mines are now back at normal operating levels. The Williamson mine in Tanzania remains on care and maintenance but Petra said it is "continually evaluating when we can recommence operations".