The plan by Aquarius Platinum to buy back at least half of its bonds is winning plaudits from investors, who drove yields on the debt to the biggest one-day drop on record.
The yield on its convertible notes due in December 2015 was 10.28 percent on Friday, more than 5 percentage points lower in the week as the company announced a rights offer to repurchase as much as 76 percent of its $298 million (R3.1 billion) of debt. The average dollar yield on emerging market metals and mining companies fell 8 basis points in the period to 6.16 percent, JPMorgan Chase indices show.
“The risk will have declined more than proportionally,” Thomas Kemmsies at Nomura Asset Management, which holds Aquarius bonds, said from Frankfurt on April 9. Even “at 9 percent it is worth holding on to”.
Aquarius, with all but one of its platinum assets in South Africa, has struggled to boost cash after shutting three mines since 2011 amid a 16 percent plunge in prices. The stock of the Australia-based company, which slid 12 percent in London in the two days after the share announcement, ended the week up 13 percent as analysts said the funding plan eased concern about the company’s strategy for repaying the bond.
Bondholders had until Friday to indicate whether they would sell the notes back to Aquarius, which said on April 7 it wanted to repurchase at least $150m and as much as $225m of the debt. Investors owning $138m of the debt had told the firm they would sell, Aquarius said.
The producer would then sell stock to existing shareholders to raise an amount equal to or more than what it would have spent on the buy-back, it said.
Aquarius held the equivalent of $78m in cash as of January 31, down 14 percent from September last year, and had net debt of $199m. It will boost cash holdings by about $64m, before tax, once the sales of its stakes in the Blue Ridge mine and Kruidfontein prospecting rights, announced on January 30, are completed.
The company would have net debt of about $20m should it sell enough shares to buy back at least $150m of bonds and receive the proceeds from the asset sales, Justin Froneman at SBG Securities said on Thursday.
Aquarius set the initial price to exchange the debt into equity at $6.773 a share in November 2009. The stock closed at the equivalent of 60 US cents in Sydney on April 7, the last day of trading before the bond buy-back and share sale were announced.
Aquarius shares gained 2.8 percent to close at R7.35 in Johannesburg yesterday.