REG-Petra Diamonds: Restructuring - Commercial Terms Agreed

Petra DiamondsAnnouncement

20/10/2020 07:05

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

 20 October 2020   LSE: PDL 

Petra Diamonds Limited

("Petra", "PDL" or the "Company" or, in conjunction with its subsidiaries, the
“Group”)

Long-term Restructuring Solution for Petra: Commercial Terms agreed in
principle with Financial Stakeholders

Conclusion of Formal Sale Process

Introduction

Throughout this calendar year Petra Diamonds Limited has been considering the
Group's strategic options, including with respect to the maturity of its
US$650 million 7.25% Senior Secured Second Lien Notes (the "Notes") in May
2022. The Company updated the market on 29 May 2020 that it had reached
agreement with an ad-hoc group of holders of the Notes (the "AHG") regarding
forbearance in respect of the May 2020 interest payment due on the Notes
pursuant to a "Forbearance Agreement", and also agreement with the Group's
South African lender group regarding the Group's near-term liquidity position.
Both of these agreements required Petra to work towards a long-term
restructuring solution to improve the Group's capital structure.

To this end, the Company has engaged in an extended period of hitherto
confidential discussions with the Group's relevant financial stakeholders and
is pleased to announce that it has reached agreement in principle on a common
set of commercial terms with respect to a long-term solution for the
recapitalisation of the Group (the "Restructuring") with each of the AHG and
the South African lender group. The key features of the proposed Restructuring
are as follows:
1. partial reinstatement of the Notes debt and the contribution by holders of
the existing Notes of US$30.0 million in new money, each to take the form of
new senior secured second lien notes ("New Notes"). It is expected that the
New Notes will amount to approximately US$337.0 million (including the new
money and fees paid as part of the transaction in New Notes)1;
2. conversion of the remainder of the Notes debt into equity, which will
result in the Noteholder group holding 91% of the enlarged share capital of
PDL;
3. restructuring of the first lien facilities provided by the South African
lender group; and
4. new governance arrangements and cashflow controls.
The parties will continue to work together towards agreeing a "Lock-Up
Agreement" to bind each party into supporting the Restructuring on these
proposed terms, as further described in this announcement. This is expected to
include members of the AHG and the South African lender group, subject to
credit committee and other approvals. The Restructuring will involve the
Group's black economic empowerment ("BEE") partners, and accordingly, the
Company has also briefed the BEE partners on their involvement. The Company
intends that its BEE partners will be parties to any binding agreements
concerning the Restructuring, including any Lock-Up Agreement.

Having reached an agreement in principle on the terms of the Restructuring,
the Board of PDL has decided to conclude the formal sale process with respect
to the Group, which commenced on 26 June 2020. The formal sales process has
not produced any offers for the Group or its assets that the Board considers
to be a viable alternative to the Restructuring in terms of improving the
Group's capital structure for the benefit of its financial and other
stakeholders.

1 The Company estimates the Group will have US$699 million of Notes
outstanding as of 1 November 2020, reflecting the US$650 million principal
amount and US$49 million of accrued coupons for May and November. Final amount
to be increased to reflect any additional accrued interest from 1 November
2020 until the closing date of the Restructuring.

Outline timetable

The Company expects to agree a Lock-Up Agreement with the AHG and the South
African lender group in the early part of November 2020. Following execution
of a Lock-Up Agreement, the Group will commence implementation of the
Restructuring, which is expected to become effective in Q1 of calendar year
2021. In order to become effective, the Restructuring as currently constituted
will need to be approved by PDL shareholders at an extraordinary general
meeting ("EGM"). For the purposes of convening the EGM, the Company will
publish a circular and prospectus to shareholders. The Company currently
anticipates publishing the combined circular and prospectus before the end of
the calendar year.

A further update in relation to the Company's corporate calendar will be made
in due course.

Richard Duffy, Chief Executive of Petra, said:

"We are very pleased to announce today an agreement in principle between the
Company and our financial stakeholders on the key terms of a restructuring
that puts PDL on a viable footing going forward, for the benefit of all our
stakeholders. We would like to thank both the AHG and South African lender
group for their ongoing support and commitment to the Company, which they have
demonstrated by agreeing in principle to provide meaningful additional
liquidity to the Company during this difficult period. 

“We own and operate world-class diamond assets; all of our South African
mines are now back at normal operating levels, despite being subject to
stringent COVID-19 precautionary measures. The Williamson mine in Tanzania
remains on care and maintenance but we are continually evaluating when we can
recommence operations, subject to more favourable market conditions. The Board
believes the agreement in principle announced today provides the business with
a stable, deleveraged capital structure that will ensure the short and
long-term viability of the Company. Today is an important milestone for Petra,
and we will continue to work constructively with our financial stakeholders to
convert the agreement in principle into legally binding agreements and
implement the Restructuring."

Commercial terms of the Restructuring

The following outlines the material features of the Restructuring that have
been agreed in principle between the Company, the AHG and the South African
lenders. The implementation of the Restructuring is now subject to agreeing
documentation between the parties, including the Group's BEE partners, and PDL
shareholder approval. Any full-form documentation involving the South African
lenders will also be subject to obtaining approval from the respective
lenders' credit committees before execution is possible.

 1. Reinstatement of Notes debt and New Money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
 New Notes All Noteholders shall have a right to subscribe for a portion of US$30.0 million of new money to be provided by Noteholders to Petra Diamonds US$ Treasury plc (the “New Money”), pro rata to their holdings of the Notes. The New Money will be structured to incentivise participation by Noteholders, including through the treatment of their existing Notes debt (as further described below), and backstopped by certain of the Noteholders. A portion of the existing Notes debt will be reinstated alongside  
 the New Money notes; each to be reinstated in the form of New Notes. The New Notes will be allocated as follows:  Material terms of the New Notes: It is contemplated that the above arrangements with respect to the Notes shall be effected through an English law scheme of arrangement under part 26 of the Companies Act 2006.                                                                                                                                                                                             
 2. Equity :                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
 Debt for Equity The remainder of the existing Notes debt will be exchanged for equity in PDL (the "Debt for Equity"), pursuant to which new ordinary shares in PDL will be issued to the Noteholders in consideration for the assignment of existing Notes debt. The Debt for Equity will result in the Noteholder group holding 91% of the enlarged share capital of PDL in the following proportions: As a consequence of the Debt for Equity, at least 9% of the enlarged PDL share capital will remain with the existing PDL 
 shareholders (subject to dilution as a result of standard management equity incentive arrangements).  Implementation The Debt for Equity as currently constituted is subject to the approval of existing shareholders of the Company at an EGM of the Company. However, the Company is also preparing to implement the agreement in principle reached with its creditors through alternative structures should shareholder approval not be obtained at the relevant time. It is not anticipated that such alternative structures 
 would result in any retention of equity or other interests in the Group by the existing shareholders of the Company.                                                                                                                                                                                                                                                                                                                                                                                                            
 3. Arrangements with the South African lender group                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
 The various existing arrangements with the South African lender group, including the ZAR500 million working capital facility ("WCF"), the ZAR400 million RCF, the financing arrangements in respect of the Group's BEE partners (the "BEE Facilities") and the Group's general banking facilities will (subject to credit committee approval) be restructured as part of the Restructuring. The new bank facilities will comprise the following, on a first lien basis and on substantially the same terms (or better for the   
 Group) as under the existing documentation:  Term Loan  RCF  Ancillary Facilities Derivative, guarantee, foreign exchange and intra-day exposure lines up to an agreed amount consistent with current requirements and on substantially the same terms as the Group's existing arrangements.  Hedging The existing arrangements will be rolled over to provide hedging against foreign exchange risk on the same terms as the Group's existing arrangements.                                                                    
 4. Additional rights for holders of the New Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
 The holders of the New Notes will be granted certain rights, and some ongoing financial oversight, over the business of the Group, including with respect to governance and cashflow controls.  Directors and Corporate Governance it being acknowledged that the Company shall comply with the UK Listing Rules and the UK Corporate Governance Code on the appointment of additional independent non-executive directors as applicable. If at any time the Noteholder (shareholder) ceases to hold at least 7% of the shares  
 in PDL (taking into account shares issued under the Debt for Equity), the rights will fall away. These arrangements will be governed by agreements between the relevant Noteholder (in its capacity as shareholder) and the Company.  Cashflow Control Enhancement Covenants In addition to restrictions and tightening to existing covenants and baskets in relation to the Notes (which are to be agreed):  Cash Flow Protocols All cash flows, whether from operations or otherwise, will be applied in accordance with a    
 cash flow protocol. The protocol will include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Notwithstanding the agreement in principle between the Company, the AHG and
the South African lender group as indicated above, implementation of the
Restructuring is still subject to finalisation of commercial, tax and legal
due diligence, relevant conditions precedent and agreement of all customary
implementation documentation (including with respect to all aspects of the
above).  

A. Outcome of Formal Sales Process

In connection with its strategic review of the Group's options with respect to
its capital structure, the Company commenced a formal sales process on 26 June
2020, which was led by its financial adviser Rothschild & Co.  The Company
invited indicative offers from prospective purchasers on the basis of publicly
available information only.  It was the Company's intention to then invite
any prospective purchasers with viable indicative offers to participate in a
"Phase Two" sales process.  However, after due consideration of the results
of the Phase One process and the progress that has been made on the
Restructuring discussions, the Company has determined that no offers received
justify progression to a Phase Two process at this time.  Accordingly, and in
light of the Restructuring proposal summarised in this announcement, the
Company has ceased the formal sales process

B. Technical Review by SRK

At the request of the AHG (and coordinated by the AHG’s advisers, Houlihan
Lokey and White & Case), the Company retained SRK Consulting (“SRK”) to
undertake a technical review on behalf of the AHG.  SRK compiled an
independent technical report for the AHG which will in due course be made
available to relevant parties, and on a non-reliance basis, at the following
website: https://www.lucid-is.com/auroraSRK/.

The report was based on publicly available information and validated the
capital expenditures plan published by the Company in its press release dated
29 May 2020, assuming no delay in capital expenditures. In addition, on the
basis of SRK’s independent industry expertise and judgment, SRK ran various
additional capital expenditure scenarios aligned with scenarios the Company
has also looked at in the past, including potential scenarios for delaying
and/or resequencing capital expenditure.

The information communicated in this announcement is inside information for
the purposes of Article 7 of Regulation 596/2014. Upon the publication of
this announcement via a Regulatory Information Service, this inside
information will be considered to be in the public domain. The person
responsible for arranging for the release of this announcement on behalf of
the Company is Jacques Breytenbach, Finance Director.

~ Ends ~

For further information, please contact:

Petra Diamonds,
London                                        
Telephone: +44 20 7494 8203

Jacques
Breytenbach                                    
            investorrelations@petradiamonds.com

Cathy Malins

Des Kilalea     

Marianna Bowes 
                                                      

Rothschild & Co

Giles
Douglas                                                
            giles.douglas@rothschildandco.com

Glen
Cronin                                                    
            glen.cronin@rothschildandco.com

Mahir
Quraishi                                               
            mahir.quraishi@rothschildandco.com

About Petra Diamonds Limited

Petra Diamonds is a leading independent diamond mining group and a consistent
supplier of gem quality rough diamonds to the international market. The
Company has a diversified portfolio incorporating interests in three
underground producing mines in South Africa (Finsch, Cullinan and
Koffiefontein) and one open pit producing mine in Tanzania (Williamson).

Petra's strategy is to focus on value rather than volume production by
optimising recoveries from its high-quality asset base in order to maximise
their efficiency and profitability. The Group has a significant resource base
of ca. 250 million carats, which supports the potential for long-life
operations.

Petra conducts all operations according to the highest ethical standards and
will only operate in countries which are members of the Kimberley Process. The
Company aims to generate tangible value for each of its stakeholders, thereby
contributing to the socio-economic development of its host countries and
supporting long-term sustainable operations to the benefit of its employees,
partners and communities.

Petra is quoted with a premium listing on the Main Market of the London Stock
Exchange under the ticker 'PDL' and is a constituent of the FTSE4Good Index.
The Company’s US$650 million loan notes due in 2022 are listed on the Global
Exchange market of the Irish Stock Exchange. For more information, visit
www.petradiamonds.com.

Important Notice

This announcement contains statements about Petra that are or may be forward
looking statements. All statements other than statements of historical facts
included in this announcement may be forward looking statements. Without
limitation, any statements preceded or followed by or that include the words
"targets", "goals", "should", "would", "could", "continue", "plans",
"believes", "expects", "aims", "intends", "will", "may", "anticipates",
"estimates", "hopes", "projects" or words or terms of similar substance or the
negative thereof, are forward looking statements.

Such forward looking statements involve risks and uncertainties that could
significantly affect expected results and are based on certain key
assumptions. Many factors could cause actual results to differ materially from
those projected or implied in any forward looking statements. Due to such
uncertainties and risks, readers are cautioned not to place undue reliance on
such forward looking statements, which speak only as of the date hereof. Petra
disclaims any obligation to update any forward looking or other statements
contained herein, except as required by applicable law or regulation.

N.M. Rothschild & Sons Limited ("Rothschild & Co"), which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority, is acting
exclusively for Petra and no one else in connection with the contents of this
announcement and will not be responsible to anyone other than Petra for
providing the protections offered to clients of Rothschild & Co nor for
providing advice in relation to the subject matter of this announcement or any
other matters referred to in this announcement.



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