Berenberg downgraded Petra Diamonds Ltd as it is concerned that the miner to will need an equity financing soon. The bank, which had upgraded Petra in April, as planned deleveraging was expected to drive an equity re-rating, cut its rating back to 'sell.
Petra's latest quarterly statement and guidance for 2020 highlighted that deleveraging "would be slower than we had anticipated". Furthermore, the impact of reduced diamond price estimates, driven by weak diamond markets, is expected reduce Petra's net asset value and cash flow.
The Proactive Investors website said that as Petra "moves towards the maturity of its US$650 million bond in May 2022, this heightens the concern about the company's ability to repay its refinanced debt over the current life of mine to 2030."
Petra will be needing to refinance about $475 million of forecast debt when it falls due, which, Proactive Investors wrote is "still too much considering the level of forecast cash flow generation."
With a projected mine life to 2030, analysts do not think that Petra's operations will generate enough cash to repay the refinanced debt principal in full, and so therefore see an increased likelihood of an equity raise as part of the debt refinancing.
"In our view, this leaves little near-term upside for shareholders, and feel that for now, Petra is working for the banks, with equity holders forced to take a backseat and/or assist in a refinancing." Proactive Investors wrote.