Impala Platinum, SA’s third-largest source of platinum group metals (PGMs), will buy back up to half of a R3.25bn convertible bond maturing in 2022 for cash as it strengthens its balance sheet by removing debt.
According to the initial offer, Implats will pay R5.74bn to retire R1.625bn worth of the bonds.
There is a potential that, based on the share price movement in the next few days, it could go as high as R6.3bn based on any price increase, but the expectation is for the company to pay out a number between those two levels.
The share price is expected to show some volatility before the offer expires on December 9 as hedge funds, the dominant holder of bonds, liquidate their short positions in Implats’s equity that they had put in place to protect themselves from downside risk in holding these convertible bonds.
Implats is taking advantage of the strong price for the basket of PGMs it produces to reduce the size of the 6.375% bond and reduce interest payments. It has already eliminated a 2022 dollar bond through the issue of shares.
“Implats has confidence in the outlook for PGM markets and the invitation is considered a proactive approach to extinguish a material existing debt liability and simultaneously reduce the potential future dilution associated with the conversion of the bonds on existing Implats shareholders,” it said.
“The proactive management of the balance sheet is considered key to repositioning the company as a profitable and sustainable business with the ability to deliver meaningful returns for all stakeholders through the commodity cycle,” it said.
Implats can redeem the bond in June 2021, but it has opted to make the offer to bondholders early, taking advantage of its strong cash generation.
The company invited bond holders to sell half their stake in the issuance in an offer that expires at the close of business on December 9 in SA.
The decision behind the offer is to prevent the dilution of shareholders’ interest when the bond matures in 2022. Implats could issue 65-million shares when it matures. Based on the prevailing price of R175 per share, these shares are worth R11.38bn.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.