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By Clara Denina
LONDON, April 22 (Reuters) - London-listed diamond miner
Petra Diamonds is working towards restructuring its $650
million debt, as the challenges facing an industry assailed by
synthetic rivals are complicated by the coronavirus pandemic
hitting demand, sources said.
The company, with a small market capitalisation of 19.83
million pounds ($24.55 million), announced in February it was
looking at strategic options in relation to its debt due in 2022
with the help of investment bank Rothschild. It had launched a
debt reduction programme last year.
Sources now say that Petra, which extended the terms on its
debt in 2017, is preparing to talk to bondholders again.
"The bond is 33 cents on the dollar and bondholders will
have to decide what to do, convert the debt into equity or not,"
one banking source said.
There could be a haircut taken by the lenders, including
investors who bought the debt in the public market, so should
the bondholders convert the debt into equity they would still
have ownership of assets, another source said.
Petra declared a force majeure at the Williamson mine in
Tanzania and scaled down operations to a minimum level in South
Africa, as diamonds prices are depressed and sales halted by the
global coronavirus lockdown.
Increased liquidity and flexibility on when to pay back its
debt could give Petra more time if the lockdown is extended and
there's no cash coming in, a second source said.
Investment banks however are increasingly reluctant to
extend credit to diamond producers, as inventory is not being
sold and defaults are possible, the source added.
The company declined to comment.
In an update to the market on April 9, it said it was in
talks with its lenders to access ZAR1 billion ($54.95 million)
in credit and it would fully draw down on its working capital
facility of ZAR500 million.
"We are concerned about oversupply of rough diamonds
following the reopening of economies as a lot of inventory could
potentially be flooded into the system and the market might not
be able to absorb all of it thereby resulting in increased
pricing pressure," Citi analysts said in a note.
The company's share price is headed for a fourth year of
losses, having fallen 74% so far in 2020.
Coronavirus is a new threat to the diamond industry, which
has already been hit by lower demand from China, the world's
second largest market after the United States, following a
prolonged trade war and anti-government protests in Hong Kong in
2019.
Apart from problems in China, some analysts have also blamed
the increased importance of laboratory-grown stones for price
weakness in the diamond market.
Man-made diamonds require less investment than mining
natural stones and can offer more attractive margins.
($1 = 0.8078 pounds)
(Reporting by Clara Denina; additional reporting by Barbara
Lewis and Abhinav Ramnarayan in London, Helen Reid in
Johannesburg; editing by David Evans)
