By Alex MacDonald
LONDON--Shares in Petropavlovsk (POG.LN) plunged Tuesday after
the Russian gold miner said it was struggling to refinance its debt
and would now have to issue shares.
The company's share price was down 13% at 34.6 pence a share on
the news, after having falling nearly 18% earlier in the day.
The U.K.-listed miner's shares have more than halved in value
since the beginning of the year amid concerns that the company
might breach some of its debt covenants by year-end. The company
borrowed heavily to expand its operations but was caught out by the
steep gold price decline. It posted a net loss of $54 million for
the first half of the year and had net debt of $924 million as of
end-June, more than seven times its current market capitalization
of 79 million pounds ($128 million).
Petropavlovsk said it wants to pay down its $310.5 million in
convertible bonds due on Feb. 15 but "in light of the current
market and geopolitical environment, that may not be achievable."
The lower gold price combined with the ratcheting up of
Ukraine-related sanctions against Russia has made it more difficult
for Petropavlovsk to find the cash to refinance its convertible
bonds.
Petropavlovsk said it has spoken to its senior lenders, Sberbank
and VTB, who have indicated a willingness to relax or grant
holidays on certain financial covenants. One of the lenders,
however, stipulated that any bond repayment must come from new
funds rather than existing cash on hand.
With that in mind, the company is planning to issue new
convertible bonds, the size of which will be adjusted to reflect
the amount of cash raised from a rights issue. The ultimate size of
the rights issue would be governed by demand, the company said.
Issuing shares at the moment could be tricky. AngloGold Ashanti
Ltd., (ANG.JO) the world's third largest gold producer, pulled the
plug on its $2.1 billion rights issue Monday after having unveiled
it last week. AngloGold said its shareholders weren't willing to
support the rights issue because they believed it was value
destructive, particularly in the current gold price
environment.
"It remains to be seen whether the company [Petropavlovsk] can
claw itself out of this mess," said Numis Securities in a note.
Petropavlovsk said it has received expressions of interest from
shareholders for the rights issue, but didn't name them.
Petropavlovsk also said bondholders representing 18% of the
value of the convertible bonds have indicated a willingness to
support the refinancing plan. The company plans to issue $310.5
million in new convertible bonds, adjusted by the amount raised
from the rights issue. The new convertible bonds would have a 7.5%
annual interest coupon payment and mature in October 2019. This
compares with a current coupon payment of 4% annually due in
February 2015.
The new refinancing proposal will require both bondholder and
shareholder approval, the company said.
Write to Alex MacDonald at alex.macdonald@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires