Petropavlovsk meets condition needed in exchange offer, consent bid

By Susanna Moon

Chicago, March 6 – Petropavlovsk plc said it fulfilled the condition of the exchange offer and consent solicitation for its $380 million of 4% guaranteed convertible bonds due 2015.

The company satisfied the effectiveness condition on Feb. 27, according to a company notice.

Petropavlovsk said on Feb. 24 that it received the needed consents from holders of its $310.5 million of outstanding 4% convertibles for a refinancing and that $186,333,333 of the securities were tendered in its voluntary debt-for-equity exchange.

The company also received $58,012,860 of cash underwriting commitments.

The meeting to amend the convertibles was held on Feb. 24. The proposed extraordinary resolution was passed, Petropavlovsk said.

Implementation of the changes is subject to a condition being satisfied by the long stop date.

Because of the response to the debt-for-equity exchange, there will be no mandatory exchange, the company said.

The voluntary debt-for-equity commitments will be scaled back to $158,194,620 using a factor of 84.9%.

In addition, the cash underwriting commitments will be scaled back to $47,177,625, a factor of 81.3%.

Petropavlovsk launched the refinancing on Feb. 2, saying it was necessary to keep the group continuing as a going concern.

The transaction consists of an underwritten rights issue, a debt-for-equity exchange, new convertible bonds, and bank waivers and consents from senior lenders.

It required the approval of both bondholders and shareholders at their respective general meetings.

For the bondholders, approval by two-thirds of the principal amount of bonds by value was needed for a quorum. In addition, 75% of those voting needed to approve the changes. Ahead of the launch, Petropavlovsk secured approval from a group of bondholders representing more than 71% of the principal amount of the bonds.

The shareholder meeting was scheduled for Feb. 26. The company needed approval of 75% of shareholders.

Sapinda Holdings BV, which said it represents holders of 10.7% of the company’s shares, said on Feb. 17 that it was opposing the refinancing because it unfairly favored bondholders at the expense of shareholders.

Refinancing details

Petropavlovsk’s rights issue is intended to allow shareholders to preserve their investment from dilution by subscribing for new equity.

The fully preemptive 157-for-10 rights issue at 5p per share will raise £155.1 million. Petropavlovsk said the price was set by the board, as required by a group of bondholders.

The cash underwriting of £50.8 million was arranged by Hambro and chief executive officer Pavel Maslovskiy and committed to by certain bondholders. All but £400,000 of the rights issue will be underwritten.

For new ordinary shares not taken up in the rights issue or placed, some bondholders have agreed to exchange their bonds for new ordinary shares in an amount of £104 million.

Any new ordinary shares not underwritten or taken up may be issued as part of a mandatory debt-for-equity exchange – although the mandatory exchange will not now be necessary.

The company will launch a new, five-year $100 million convertible bond issued by Petropavlovsk 2010 Ltd. and guaranteed by Petropavlovsk plc.

The new convertibles will mature on Dec. 31, 2019 and pay a quarterly coupon of 9%. The conversion price will be a 50% premium to the theoretical ex-rights price. Petropavlovsk will be able to call the new convertibles after three years subject to a trigger of 150% of the conversion price.

For the bank waivers, Petropavlovsk said on Feb. 2 that VTB, ICBC and Sberbank have signed waiver documentation and it added that a waiver between Sberbank and some of the company’s subsidiaries was expected to be executed shortly.

Some bondholders agreed to provide $45 million in cash by participating in the rights offering, and they were to receive priority in receiving cash or new convertible bonds for their existing holdings, with the cash capped at their commitment to the rights offering. Bondholders participating in the agreement were also to participate in a debt-for-equity exchange for more than $130 million of the bonds and were to gain second priority in receiving cash or new convertible bonds for the existing convertibles that they owned, capped at the level of their commitment to the exchange.

Any remaining cash raised in the rights issue and any remaining new convertibles were to be allocated to redeem at par any of the existing convertibles that were still outstanding after these two steps. Accrued interest on the existing convertibles will be paid in cash.

An early consent fee of 0.25% is expected to be paid to bondholders who voted in favor of the recapitalization by an early deadline.

Petropavlovsk said previously that the mandatory debt-for-equity exchange would be on the same terms as the voluntary commitment but without the priority election mechanism. Any mandatory exchange would be capped at 10% of the existing convertibles, or $31 million.

A fee of 5% would be paid for the cash commitments from existing holders of the convertibles and from Hambro and Maslovskiy. Investors who committed to the voluntary debt-to-equity exchange were to receive 4%.

Bank of America Merrill Lynch and Sberbank CIB are coordinators of the refinancing.

Petropavlovsk, formerly Peter Hambro Mining plc, is a London-based gold mining company that operates in Russia.

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