Petropavlovsk shareholders ‘better off with Sapinda’

Thousands of small shareholders in cash-strapped gold miner Petropavolvsk might be better off if refinancing proposals from its largest shareholder Sapinda succeed over company management’s plans, says one broker close to the action.

Petropavlovsk management’s recapitalisation proposal comprises a new $100m convertible bond – which bondholders have pretty much already agreed to – and a 5p per share 157-for-ten rights issue. The latter, which is to be voted at an EGM this Thursday, would raise £155m ($235m) to help slash the company’s $920m net debt to around $700m.

The company’s chairman, Peter Hambro, along with other insiders, are personally underwriting the issue to the tune of $30m.

In an exclusive interview with Moneyweek last week, Hambro urged Petropavlovsk’s army of 12,000 small shareholders – 33% of the shareholder register – to vote for the issue or risk seeing the company go into administration and their entire investment wiped out.

Sapinda, an Amsterdam-registered fund with a 7.8% stake in Petropavlovsk, has already said that it and other shareholders with a 10.7% holding in total intend to vote against the company’s proposal, because it is too biased in favour of bondholders over shareholders.

Sapinda’s alternative proposal would see it inject $100m of its own money into the company by underwriting a shareholders’ rights issue. Also part of the proposal is an exchange of the current bonds into equity at a higher share price than the rights issue and the issuance of a new $100m bond. The overall impact, it says, would be to significantly lower dilution for current shareholders.

One informed broker commented: “Sapinda clearly don’t like the terms offered to the convertible bond holders and are demanding better terms.

“Sapinda have spoken to many of the convertible bond, holders many of whom are happy to settle for easier terms.  It is the ‘hold-outs’ – bondholders who are holding out for cash with no negotiation and no acceptance of any other offer – who have caused all the trouble. Their position has caused certain bond holders to agree to effectively pay out to the hold-outs. It is this situation that necessitated the [company management’s] low rights issue price and excessive dilution.”

He adds: “If Sapinda are successful in arguing for better terms from the convertible holders then this should be to the benefit of all shareholders.”

The company’s management initially dismissed Sapinda’s proposal as unworkable, but over the weekend reports emerged that the two had opened talks. The Financial Mail on Sunday cites sources close to Petropavlosk as saying that the talks were aimed at convincing Sapinda to support management’s original proposal.

At midday, Russia-focused Petropavlovsk (LSE: POG) shares were down 9.2% or 1.65p to 16.35p, valuing the company at £32.64m. Having risen to the dizzy heights of 1,365p in April 2010, the company’s share price has slumped nearly 100%.

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