Petropavlovsk has launched a liability management transaction to refinance US$100mn convertible bonds due March 2020, offering to redeem them at 108 plus accrued interest. The company plans to issue up to US$125mn of new convertible bonds to finance the transaction if the current holders agree to tender all outstanding bonds or amend covenants.
According to the preliminary terms released today, the new convertible bonds will have a five-year tenor, an 8-8.5% coupon and a conversion premium of 20-25% over today’s volume-weighted share price. The transaction is generous to current convertible bondholders, providing a persuasive incentive to participate in the tender offer.
If completed successfully, the transaction will be positive for the company and holders of US$500mn bonds due 2022. They will become structurally senior to convertible bonds. The company will have dealt with the most pressing liquidity issues (IRC loan and convertible bond refinancing).
Finally, with the POX facility up and running, the lion’s share of capex out of the way and gold prices moving above US$1,300/oz, POGLN 22s could have a potential for further tightening if the bonds are increasingly perceived as part of the mainstream Russian corporate bond universe – a constellation of bonds trading at low-to-mid-single-digit yields. We maintain our Hold recommendation.