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Petra Diamonds Ltd - Restructuring: Signing of Lock-Up Agreement

·14-min read

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR IMMEDIATE RELEASE

17 November 2020

LSE: PDL

Petra Diamonds Limited

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

Signing of Lock-Up Agreement by Key Financial Stakeholders in Support of Restructuring

Introduction

The Company is pleased to announce that it has today executed a lock-up agreement (the "Lock- Up Agreement") with an ad-hoc group (the "AHG") of holders of the US$650 million 7.25% senior secured second lien notes issued by the Group (ISINs USG7028AAB91 and US71642QAB32; CUSIPs: G7028AAB9 and 71642QAB3) (the "Notes"), the providers of the Group’s first lien bank debt facilities (the “South African Lender Group”) and its black economic empowerment partners (the "BEE Partners"). This Lock-Up Agreement formalises the agreement reached in principle regarding a long-term solution for the recapitalisation of the Group (the "Restructuring") previously announced by the Company on 20 October 2020.

The execution of the Lock-Up Agreement marks a positive step forward in the implementation of the Restructuring. Pursuant to the terms of the Lock-Up Agreement, the parties have undertaken to take all actions reasonably necessary in order to implement the Restructuring and to not delay or prevent the implementation of the Restructuring. Further details relating to the terms of the Lock-Up Agreement are set out below.

Notwithstanding the execution of the Lock-Up Agreement, the implementation of the Restructuring remains subject to the agreement of customary implementation documentation and the satisfaction of relevant conditions precedent. Such conditions precedent include (but are not limited to) approval of the Company's shareholders (the "Shareholders") at a special general meeting (the "SGM") and approval of the Scheme (as defined below) by the Noteholders and the sanctioning of the same by the court. Further details regarding these conditions are set out below.

Agreement in principle

As announced by the Company 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 to take the form of new senior secured second lien notes ("New Notes"). It is expected that the New Notes will 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, which will result in the holders of the Notes (the "Noteholders") 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.

Lock-up Agreement

Terms of the Restructuring

The terms of the Restructuring as announced on 20 October 2020 remain substantially the same, save for the following substantive differences:

  • Noteholder(s) projected, at the date 14 days following entry into the Lock-Up Agreement, to hold at least 5% of the ordinary shares in the Company as at the Restructuring effective date (“Qualifying Noteholders”) will be entitled to rights enabling them to nominate an individual to be appointed as a non-independent, non-executive director of the Company (“Nomination Rights”) in accordance with the following:

    • Nomination Rights will be allocated to the four largest Qualifying Noteholders provided that

      • if any such Qualifying Noteholder elects not to exercise its Nomination Right, such Nomination Right may be exercised by the fifth largest Qualifying Noteholder, failing which by the next largest Qualifying Noteholder, and so on until each Qualifying Noteholder has had the opportunity to exercise such Nomination Right, and failing which each Qualifying Noteholder (in descending order from largest to smallest) shall be entitled to exercise the relevant Nomination Right following the same sequence as set out in this paragraph (save only that no one Qualifying Noteholder shall be entitled to more than two Nomination Rights);

      • a Nomination Right will be forfeited if any such Qualifying Noteholder does not hold 5% of the Ordinary Shares at or following the Restructuring effective date;

      • each Qualifying Noteholder will also be entitled to appoint an observer to the Board (such person shall not have voting rights at Board meetings) as indicated in our previous announcement.

  • In the event that the Shareholder Resolution is not passed and the Restructuring cannot occur (as detailed further below), the Company shall be permitted to amend the indenture governing the Notes to (i) facilitate the Group to raise additional debt funding of up to an aggregate amount of US$45.0 million which would rank behind the existing South African Lender Group first lien debt and ahead of the second lien Notes (the "1.5 Lien Financing"); and (ii) reduce the relevant consent threshold under the Notes indenture from 90.0% of Noteholders to a majority in aggregate principal amount of the Notes to allow Noteholders to instruct the trustee under the Notes indenture to consent to any changes required under the relevant intercreditor agreement to introduce the 1.5 Lien Financing.

A reorganisation of the arrangements with the Group's BEE Partners (with their agreement) is a condition precedent to the Restructuring. Accordingly, Petra, the AHG and the South African Lender Group will now continue their good faith negotiations with the BEE Partners in respect of such reorganisation.

The Noteholders who have executed the Lock-Up Agreement (the "Participating Noteholders") hold, in aggregate, 61.2% of the Notes (by value) (the "Locked-Up Notes"). Noteholders who wish to become Participating Noteholders and who have not yet entered into the Lock-Up Agreement may do so by executing a deed of accession.

It is contemplated that the Restructuring will be implemented by way of an English law scheme of arrangement pursuant to Part 26 of the Companies Act 2006 (the "Scheme"), in conjunction with the issue of new ordinary shares in PDL to be issued to scheme creditors (being the Noteholders) (the "PDL Share Issue"). The amendments to the Group's first lien facilities which have been negotiated and agreed with the South African Lender Group are conditional upon the successful implementation of the Restructuring.

The Company intends to launch the proposed Scheme and to send the practice statement letter (which sets out the key aspects of the Scheme and the broader Restructuring) to Noteholders on or around the date of this announcement. Noteholders will be given the opportunity to vote on the Scheme at a meeting convened by the court to approve the Scheme (the "Scheme Meeting"), which is currently scheduled for 8 January 2021. The court will then decide whether to sanction the Scheme at a sanction hearing, which is currently anticipated to take place on 12 January 2021.

The implementation of the Scheme is conditional on the PDL Share Issue, which in turn is conditional on the approval of the Shareholders at the SGM. It is currently anticipated that the SGM will take place on or around 13 January 2021. The Company intends to publish a combined prospectus and circular by the end of December, which will include a notice of the SGM that is sent to Shareholders.

In the event that the Shareholders do not pass a resolution to be proposed at the SGM (the "Shareholder Resolution"), the Restructuring cannot occur. The 1.5 Lien Financing is only expected to be required in such circumstances. If the Restructuring does not occur, it is possible that the South African Lender Group and/or the Noteholders would terminate the present forbearance arrangements that they have agreed with the Group. In the event of such a termination, the South African Lender Group would, subject to the terms of its intercreditor arrangements, be entitled to enforce its security. In those circumstances, it is likely that the South African Lender Group, the Noteholders or other creditors of the Group would take enforcement action against the Group or cause such action to be taken.

Further information regarding the Restructuring, the Scheme Meeting and the SGM will be provided in due course.

Overview of terms of Lock-Up Agreement

As noted above, pursuant to the terms of the Lock-Up Agreement, the parties have given certain undertakings, including:

  • to take all actions reasonably necessary in order to support, facilitate, implement, consummate or otherwise give effect to the Restructuring (on the terms outlined above);

  • not to delay, impede or prevent the implementation of the Restructuring;

  • in the case of the Participating Noteholders and the South African Lender Group, not to take enforcement action against the Group; and

  • in the case of the Participating Noteholders only, to attend the Scheme Meeting in person or by proxy and vote in favour of the Scheme.

In addition, the Participating Noteholders and the South African Lender Group have agreed to certain "lock-up" provisions, which restrict them from transferring:

  • in the case of the Participating Noteholders, any interests in the Notes; and

  • in the case of the South African Lender Group, any interests in all monies, debts, liabilities due, owing or incurred in connection with any of the first lien facilities,

in each case, unless the relevant transferee agrees to be bound by the terms of the Lock-Up Agreement.

Certain generally customary termination events apply to the Lock-Up Agreement (some of which are automatic and some of which are voluntary and exercisable by different parties), including but not limited to, automatic termination on the earlier of the Restructuring effective date and the date falling five months (unless otherwise agreed in accordance with the Lock-Up Agreement) after 17 November 2020 (being 17 April 2021); material non-compliance with the terms of the Lock-Up Agreement by certain parties; and the failure to satisfy certain conditions of (and to) the Restructuring by the agreed specified dates.

Lucid Issuer Services Limited (the "Information Agent") has confirmed to each of the parties that the conditions precedent to the Lock-Up Agreement (relating to, in particular, the amount of Locked-Up Notes and the payment of fees due to the advisers of the AHG and the South African Lender Group) have been satisfied. Accordingly, the Lock-Up Agreement shall bind all parties thereto from 17 November 2020 until terminated.

Fees

The Participating Noteholders who remain party to the Lock-Up Agreement (and who are not in breach of the Lock-Up Agreement) as at the effective date of the Restructuring will be entitled to a fee of 1% of the aggregate principal amount of the Participating Noteholder's Locked-Up Notes, to be paid as an allocation of additional New Notes on completion of the Restructuring (the "Early Bird Fee"). Noteholders who are not yet party to the Lock-Up Agreement, but who accede to the Lock- Up Agreement by 1 December 2020, will also be entitled to the Early Bird Fee. Payment of the Early Bird Fees will be facilitated by the Information Agent as part of the funds flow of any Restructuring.

Next Steps

The Information Agent has been engaged by Petra to act as information and tabulation agent for the Lock-Up Agreement.

Noteholders that have not yet signed the Lock-Up Agreement and wish to support the Restructuring will, in their capacity as a Noteholder, need to complete and execute an accession deed to the Lock- Up Agreement and provide evidence of their beneficial holdings to the Information Agent.

Noteholders should contact the Information Agent at +44 20 7704 0880 or petradiamonds@lucid- is.com to access further information relating to the Restructuring and for details of how to accede to the Lock-Up Agreement.

Noteholders will not be eligible for the Early Bird Fee after 1 December 2020.

The Group is targeting the completion of the Restructuring in the coming months and will continue working with the AHG, the South African Lender Group and other financial stakeholders to finalise and implement the Restructuring. Closing of the Restructuring will be subject to a number of conditions, approvals and other matters which are required in the near-term, including the negotiation and agreement of full form documentation to reflect the agreement in principle. Further announcements will be made in due course.

There can be no guarantee that the Restructuring as contemplated by the Lock-Up Agreement will be implemented on the terms set out above, and any recapitalisation of the Group may be on significantly different terms to the ones set forth in this announcement or not be consummated at all. Furthermore, the completion of the Restructuring may take significantly longer than the Group currently anticipates.

Annual Report

The Company has also published its annual report for the financial year ended 30 June 2020 today. A copy of the annual report is available on the Company's website at https://www.petradiamonds.com/investors/results-reports/.

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014. Upon the publication of this announcement via a Regulatory Information Service, this inside information will be considered to be in the public domain. The person responsible for arranging for the release of this announcement on behalf of the Company is Jacques Breytenbach, Finance Director.

~ Ends ~

For further information, please contact:

Petra Diamonds, London Telephone: +44 20 7494 8203

Cathy Malins investorrelations@petradiamonds.com Des Kilalea

Marianna Bowes

Rothschild & Co

Giles Douglas giles.douglas@rothschildandco.com

Glen Cronin glen.cronin@rothschildandco.com

Mahir Quraishi mahir.quraishi@rothschildandco.com

Lucid Issuer Services Limited Telephone: +44 20 7704 0880

Sunjeeve Patel petradiamonds@lucid-is.com David Shilson

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$650 million loan notes due in 2022, currently subject to restructuring, are listed on the Global Exchange 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.

The securities referred to in this announcement have not been and will not be registered under the

U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States, except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the United States and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

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.