Russia-focused gold miner Petropavlovsk has dismissed a private investment vehicle’s bid to counter its refinancing plans as lacking detail or any indication of how it would be financed.
Petropavlovsk’s recapitalisation proposal comprises a new $100m convertible bond – which bondholders have pretty much already agreed to – and 5p per share 157-for-ten rights issue. The latter, which is to be voted on next Thursday, will, since it is underwritten, raise £155m ($235m) to help slash the company’s $920m net debt to around $700m.
Sapinda, an Amsterdam-registered fund led by German entrepreneur Lars Windhorst said in a statement late yesterday it would be voting against the company’s refinancing package because it “unfairly favours bondholders over shareholders”.
The fund also argues the company management’s proposal fails to satisfactorily address Petropavlovsk’s working capital deficiencies and leaves the group with a debt position that would be still too high at $700m.
Sapinda has been busy stakebuilding recently. It now represents a group of Petropavlovsk shareholders who now hold a hefty 10.7% stake in the miner. It’s interest in gatecrashing the company’s rights issue first emerged last November.
In its statement, Sapinda says it has already signalled its willingness to inject a “substantial amount of money into the company as part of an alternative recapitalisation that is fairer for all shareholders”.
Sapinda adds: “We believe that we are acting in the interests of all shareholders, mostly UK retail investors, who we believe have not been effectively represented in recent negotiations over the company’s future.
In an exclusive interview with Moneyweek published yesterday, Petropavolvsk chairman Peter Hambro said it was essential the miner’s huge army of 12,000 small shareholders – around 33% of the shareholder register – vote in favour of the rights issue next Thursday. He warns that if the proposal fails to secure the necessary support the company will be liquidated and their entire holdings wiped out.
Show me the money, says Petropavlovsk
In a response this morning to Sapinda’s counter proposal, Petropavlovsk’s board says that the investment vehicle’s “approach does not include a sufficiently detailed or funded proposal which can be put to shareholders as a viable alternative to the refinancing plan [already] announced by the company”.
The board points out that for more than a year, management have held detailed discussions with its Russian and Chinese lending banks, as well as with the broad group of existing bondholders and several third parties.
It adds: “In these discussions, the objective of the board has been to achieve a certain and secure refinancing while retaining the right for its existing shareholders fully to participate in a solution that is supported by all the lenders.”
The company’s statement reveals that its evaluation of proposals put forward to it included one from Sapinda in October 2014, which the board at the time considered to be “unworkable…there was no detailed offer [from Sapinda], no independently verifiable source of funding, no fully pre-emptive right for existing shareholders and it did not gain the support of the existing bondholders.”
The board says it is acutely aware of the pressing time constraints and need for a shareholder vote to approve its declared refinancing plan which is fully funded, and secures the immediate future of the company. It adds: “This plan also retains value for existing shareholders and has support from all senior lenders, from over 90% of existing bondholders, and from all shareholders whose proxy or instruction forms have to date been received by the company.”
The statement reiterates Hambro’s warning that should sufficient shareholders vote against the resolutions so that they are not passed next Thursday, “there is a very high risk that the company would be forced into an insolvency process, such as administration or liquidation, and that shareholders would lose their entire investment in the company.”
When asked for further comment today, Peter Hambro said: “It is hard to understand what Sapinda is trying to achieve. By successfully orchestrating a vote by its shadowy group to defeat our refinancing it will precipitate an insolvency event that will, most likely destroy the value of the shares they have acquired; as well as that of all the other shareholders. On the face of it, this seems like economic suicide, unless of course, they have some hidden agenda about the company’s assets that they have not disclosed.”