Completion of the Restructuring

FOR IMMEDIATE RELEASE

10 March 2021

LSE: PDL

Petra Diamonds Limited

("Petra", "PDL" or the "Company" or, in conjunction with its subsidiaries, the "Group")

Completion of the Restructuring

Introduction

The Company is delighted to announce that it has today completed the implementation of the recapitalisation of the Group (the "Restructuring") initially announced on 20 October 2020. 

The key features of the Restructuring are as follows:

1. partial reinstatement of the Notes debt and the contribution by holders of the existing Notes of US$30.0 million in New Money, each taking the form of new senior secured second lien notes (the "New Notes").  The New Notes amount to approximately US$337.0 million (including the New Money and fees paid as part of the transaction in New Notes);
2. conversion of the remainder of the Notes debt into equity, resulting in the Noteholder group holding 91% of the enlarged share capital of PDL;
3. restructuring of the first lien facilities provided by the South African lender group; and
4. new governance arrangements and cashflow controls.

 CEO Richard Duffy comments:

“The completion of the Restructuring is a significant achievement for Petra and I would like to thank our noteholders, lenders and shareholders for their continued support.  The Restructuring will provide Petra with a stable and sustainable capital structure, significantly reduced financial burdens and greater liquidity, leaving us in a stronger position to focus on optimising the value of our diversified asset base and to deliver growth for all our stakeholders.”

Admission of New Ordinary Shares

As part of the Restructuring and pursuant to the debt for equity conversion announced on 22 December 2020, at 8.00 a.m. today, 8,844,657,929 New Ordinary Shares were admitted to listing on the premium segment of the Official List of the FCA and admitted to trading on the London Stock Exchange's main market for listed securities ("Admission"). Following Admission and completion of the Capital Reduction, the Company’s New Ordinary Shares trade under the new ISIN BMG702781417 to reflect the change in the nominal value to 0.001p per share.

Voting Rights and Share Capital

In accordance with its obligations under the FCA's Disclosure Guidance and Transparency Rules (the "DTRs"), the Company hereby confirms that, as at the date of this announcement, the Company's share capital consists of 9,710,089,272 Ordinary Shares of 0.001 pence each in issue with voting rights, none of which are held in treasury.

The figure of 9,710,089,272 may be used by shareholders as the denominator for any calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the DTRs.

Appointment of Non-Executive Director

The Company is also pleased to announce that the appointment to the Board as a Non-Executive Director of Mr. Matthew Glowasky, whose prospective appointment was initially announced on 22 December 2020, became effective immediately upon Admission.

Overview of the Restructuring

The key features of the Restructuring are:

1. Reinstatement of Notes debt and New Money

New Notes

All Noteholders had a right to elect to contribute a portion of US$30.0 million of new money provided to Petra Diamonds US$ Treasury Plc (the "New Money") pro rata to their existing holdings of the Notes, as a subscription for New Notes.  The New Money was structured to incentivise participation by Noteholders, including in relation to the treatment of their existing Notes debt (as further described below).

A portion of the existing Notes debt was reinstated alongside the New Money notes; also in the form of New Notes. The New Notes have been allocated as follows:

1. US$30.0 million (reflecting the New Money) allocated only to those Noteholders that subscribed, and funded that subscription, to the New Money, pro rata to their New Money contribution (the “New Money Noteholders”);
2. US$150.0 million allocated only to those New Money Noteholders, pro rata to each holder's contribution to the New Money;
3. US$145.0 million allocated to all Noteholders (including the New Money Noteholders), pro rata to their holdings of existing Notes at the close of the Restructuring; and
4. a further amount of New Notes as consideration to certain Noteholders, including the Ad Hoc Committee, in remuneration for the commercial risks and other commercial considerations borne by those Noteholders whilst restricted for the purposes of negotiations with other stakeholders and work performed in connection with the Restructuring.  The quantum of New Notes issued for this purpose was approximately US$12.0 million, including, without limitation:
   1. New Notes issued to any Noteholder who executed the Lock-Up Agreement on or within 14 days of the date of the agreement (the "Early Bird Fee"), where the Early Bird Fee was equal to 1.0% of the aggregate principal amount of such Noteholder's existing Notes as at the date 14 days after the date of the Lock-Up Agreement; and
   2. New Notes issued to certain Noteholders who agreed to provide any portion of the New Money that was not otherwise provided by the other Noteholders in the form of a pro rata allocation of US$1.5 million of New Notes.

Material terms of the New Notes:

1. Interest rate (payable every six months as follows):

1. 9 March 2021 to 31 December 2022: PIK interest at a rate of 10.50%;
2. 1 January 2023 to 30 June 2023: PIK interest accrues at a rate of 10.5% per annum on 37.7778% of the aggregate principal amount of the New Notes and cash pay interest accrues at a rate of 9.75% per annum on 62.2222% of the aggregate principal amount of the New Notes; and
3. 1 July 2023 to maturity: cash pay interest at a rate of 9.75%.

(b)  Maturity date: 5 years from completion of the Restructuring.

(c)  Non-call protection: 2 year non-call protection (customary make-whole), and coupon step-down profile thereafter at 104.88, 102.44, then par.

(d)  Covenants: customary for a financing of this type, including (i) a change of control provision requiring a change of control offer at 101% and (ii) a minimum liquidity covenant.

(e)  Guarantors, security and ranking: second-ranking guarantees and security provided on substantially the same terms as under the existing Notes, with certain amendments agreed in line with corporate restructuring steps.  Other than in relation to assets in Tanzania, enhancements to the security package were agreed, including, but not limited to, security over intra-group offtake receivables and inventory at all relevant points in the supply chain until the inventory is sold to a third party.  Such enhancements were also included in the first lien security package.

(f)  Intercreditor agreements: to reflect second-ranking guarantees and security and certain additional intercreditor arrangements, including payment stops and conditions to paying cash interest (which include: (i) that the amount drawn under the new Revolving Credit Facility ("RCF") shall be no more than ZAR400 million immediately prior to, and shall not be forecast to be for two weeks following, the interest payment; and (ii) compliance with a minimum unrestricted cash covenant of US$20.0 million) and customary enforcement limitations, subject to the requirements and covenants of the first lien debt (including compliance with a first lien debt service cover ratio (see Section 3 below for further details).

The above arrangements with respect to the Notes were effected through an English law scheme of arrangement under Part 26 of the Companies Act 2006.

The holders of the New Notes have been granted certain rights, and some ongoing financial oversight, over the business of the Group, including with respect to governance and cashflow controls. Certain of these are summarised at paragraph 4 below.

2.  Equity

Debt for Equity Conversion

The remainder of the existing Notes debt was exchanged for equity in PDL (the "Debt for Equity Conversion"), whereby New Ordinary Shares were issued to the Noteholders in consideration for the assignment of existing Notes debt.  The Debt for Equity Conversion has resulted in the Noteholder group holding 91% of the enlarged share capital of PDL in the following proportions:

1. 56.0% of the enlarged share capital was issued to all Noteholders, including the New Money Noteholders, pro rata to their holdings of existing Notes at the Scheme Record Time (to the extent any Noteholder did not take up their equity entitlement, such entitlement was allocated to the remaining Noteholders who did not opt out of their equity entitlement, on a pro rata basis); and
2. 35.0% of the enlarged share capital was issued to the New Money Noteholders only, pro rata to their contribution of the New Money (to the extent any such Noteholders did not take up their equity entitlement, such entitlement was allocated to the remaining Noteholders who contributed to the New Money and who did not opt out of their equity entitlements, on a pro rata basis).

As a consequence of the Debt for Equity Conversion, 9% of the enlarged PDL share capital remains with the previous PDL shareholders (subject to dilution as a result of standard management equity incentive arrangements).

Implementation

The Debt for Equity Conversion was approved by the existing shareholders of the Company at a special general meeting of the Company held on 13 January 2021.

3.  Arrangements with the South African lender group

The various previous arrangements with the South African lender group, including the ZAR500 million working capital facility (the "WCF"), the ZAR400 million RCF, the financing arrangements in respect of the Group's BEE partners (the "BEE Facilities") and the Group's general banking facilities were restructured as part of the Restructuring.

The new bank facilities comprise the following, on a first lien basis and on substantially the same terms (or better for the Group) as under the previous documentation:

Term Loan

1. Available in a principal amount of ZAR1.2 billion (ca. US$69 million), borrowed by the previous obligors in the Group in order to refinance the previous drawn ZAR500 million (ca. US$29 million) WCF and outstanding principal amounts of the BEE Facilities (approximately ZAR683 million (ca. US$39 million)).
2. Final maturity date: 3 years from completion of the Restructuring.
3. Scheduled amortisation of 9% of principal per quarter (starting in June 2021) with a final 10% of principal repayment at maturity.
4. 1.3x debt service cover test ratio tested semi-annually on a rolling 12 month basis and minimum actual and forecast liquidity covenant maintained at US$20 million at all times, which if breached will give rise to an event of default under the new bank facilities.
5. Interest rate of JIBAR + 5.25% per annum (with an upfront fee of 1% of the Term Loan amount capitalised).

RCF

1. Available in a principal amount of ZAR560.0 million (ca. US$32 million) constituted by a rollover of the previous RCF but upsized by ZAR160.0 million (ca. US$9 million).
2. Final maturity date: 3 years from completion of the Restructuring.
3. Scheduled reduction in the committed amount under the RCF of 9% of the total initial commitments per quarter (starting in June 2021) with a final 10% reduction at maturity.
4. 1.3x debt service cover ratio tested semi-annually on a rolling 12 month basis and minimum actual and forecast liquidity covenant maintained at US$20 million at all times, which if breached will give rise to an event of default under the new bank facilities.
5. Interest rate of JIBAR + 5.25% per annum (with an upfront fee of 1% of the RCF amount capitalised and a commitment fee based on undrawn balances).

Ancillary Facilities

Derivative, guarantee, foreign exchange and intra-day exposure lines have been provided by existing lenders up to an agreed amount consistent with current requirements and on substantially the same terms as the Group's previous arrangements.

Hedging

The existing arrangements have been rolled over to provide hedging against foreign exchange risk on the same terms as the Group's previous arrangements and under market standard ISDA documentation.

4.  Additional rights for holders of the New Notes

Directors and Corporate Governance

1. Certain individual noteholders (in their capacity as shareholders of PDL following completion of the Restructuring) who individually hold at least 5% of the shares in PDL (taking into account the shares issued pursuant to the Debt for Equity Conversion) at the closing of the Restructuring have "Nomination Rights" to:

1. nominate persons for appointment to the Board as a non-independent, non-executive director; and
2. appoint observers to the Board (such person shall not have voting rights at Board meetings),

it being acknowledged that the Company shall comply with the UK Listing Rules and the UK Corporate Governance Code on the appointment of additional independent non-executive directors as applicable.

(b)  The Nomination Rights were allocated to certain individual Noteholders who executed the Lock-Up Agreement on, or within 14 days of, the date of the Lock-Up Agreement (the "Deadline"), provided they were projected to satisfy the minimum shareholding requirements set out above in (a).

(c)  Details of the Nomination Rights were included in the PDL combined circular and prospectus published in connection with the Debt for Equity Conversion, and the appointment of Mr. Matthew Glowasky referenced above was made pursuant to one such Nomination Right.  The PDL combined circular and prospectus also disclosed the intention that the previous directors of PDL remain in office following completion of the Restructuring.

(d)  The Board will, following completion of the Restructuring, form an advisory investment committee, which includes directors appointed pursuant to Nomination Rights in order to monitor significant capital and other investments and recommend their adoption to the full Board.

(e)  A cash bonus and/or equity-based management incentive plan has been implemented by the Remuneration Committee post-completion of the Restructuring, which has been designed to incentivise and reward business performance and to achieve or exceed targets set by the Board, which includes targets relating to cash generation and leverage and performance against the PDL business plan.  Such arrangements were put forward in the normal course for approval by shareholders at the AGM.

Cashflow Control Enhancement Covenants

In addition to further restrictive covenants and a tightening of existing covenants and baskets in relation to the New Notes, all Group cashflows, whether from operations or otherwise, will be applied in accordance with a cashflow waterfall protocol, to which all stakeholders have agreed.  The protocol includes:

1. transparent and orderly cashflow management in the ordinary course;
2. recording and implementation of the agreed terms and priority of ordinary course payments as between the operating companies, the rest of the Group, the BEE partners, the South African lender group and the Noteholders and restricted payments; and
3. debt service waterfalls, reflecting the priority and application of payments to the banks as first lien debt providers and to the Noteholders as second lien debt providers, subject to fulfilment of existing payment obligations to BEE partners up to a maximum threshold amount.

Capitalised terms used but not defined in this announcement have the meaning given to them in the explanatory statement dispatched to Scheme Creditors on 10 December 2020 or in the combined prospectus and circular published by the Company on 22 December 2020, which is available on the Company's website (www.petradiamonds.com/investors/2020-financial-restructuring/), as applicable.

~ Ends ~

For further information, please contact:

Petra Diamonds, London  Telephone: [phone]

Des Kilalea     [e-mail]

Marianna Bowes   

Rothschild & Co

Giles Douglas    [e-mail]

Glen Cronin    [e-mail]

Mahir Quraishi    [e-mail]

About Petra Diamonds Limited

Petra Diamonds is a leading independent diamond mining group and a consistent supplier of gem quality rough diamonds to the international market. The Company has a diversified portfolio incorporating interests in three underground producing mines in South Africa (Finsch, Cullinan and Koffiefontein) and one open pit mine in Tanzania (Williamson).

Petra's strategy is to focus on value rather than volume production by optimising recoveries from its high-quality asset base in order to maximise their efficiency and profitability. The Group has a significant resource base of ca. 243 million carats, which supports the potential for long-life operations.

Petra conducts all operations according to the highest ethical standards and will only operate in countries which are members of the Kimberley Process. The Company aims to generate tangible value for each of its stakeholders, thereby contributing to the socio-economic development of its host countries and supporting long-term sustainable operations to the benefit of its employees, partners and communities.

Petra is quoted with a premium listing on the Main Market of the London Stock Exchange under the ticker 'PDL' and is a constituent of the FTSE4Good Index. The Company’s US$337 million notes due in 2026 will be admitted to the official list and trading on the regulated market of the Irish Stock Exchange. For more information, visit www.petradiamonds.com.

Important Notice

This announcement contains statements about Petra that are or may be forward looking statements. All statements other than statements of historical facts included in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "goals", "should", "would", "could", "continue", "plans", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "hopes", "projects" or words or terms of similar substance or the negative thereof, are forward looking statements.

Such forward looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward looking statements. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. Petra disclaims any obligation to update any forward looking or other statements contained herein, except as required by applicable law or regulation.

N.M. Rothschild & Sons Limited ("Rothschild & Co"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Petra and no one else in connection with the contents of this announcement and will not be responsible to anyone other than Petra for providing the protections offered to clients of Rothschild & Co nor for providing advice in relation to the subject matter of this announcement or any other matters referred to in this announcement.