Sapinda accuses Petropavlovsk bondholders of ‘scaremongering'

Sapinda, the largest shareholder in cash-strapped gold miner Petropavlovsk, has slammed a group of bondholders in the company for attempting to "frighten" shareholders into supporting a refinancing deal that is "good only for the bondholders themselves".

Sapinda's criticism follows the convertible bondholders' dismissal of a Sapinda refinancing plan in favour of one from Petropavlovsk management that comprises a 157-for-ten rights issue to raise £155m, and a new $100m convertible bond. The new bond has already secured bondholder backing, while the rights issue is due to be voted on at an EGM tomorrow.

Sapinda, an Amsterdam-registered investment fund, has already rejected the management's proposal, saying it is "too biased in favour of bondolders over shareholders". The fund says it will only vote in favour of the management's plan if all parties (company management and 75% of bondholders) agree to a follow-on private placement with Sapinda and other current shareholders of $100m at 3p per share.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The investment fund also wants the parties to allow for the option to take the issue up to $125m if necessary to meet demand from current shareholders.

However, a committee representing holders of Petropavlovsk's convertible bonds, who are owed $310m - or 60% of the total value of convertible bonds issued - has dismissed Sapinda's alternative proposal, complaining that it is "inequitable and disproportionately benefits Sapinda to the detriment of existing shareholders and other key stakeholders who are further diluted".

The bondholders add that, "the Sapinda proposal is not an alternative, as without the support of the company, senior lenders and bondholders it cannot be implemented", and that it "acts as a disincentive for parties who have fully underwritten the rights issue and for shareholders who will subsequently take up their rights. No evidence of Sapinda's ability to finance this envisaged proposal has been forthcoming to date".

They warn shareholders that unless they vote for management's original recapitalisation plan they will lose "both their entire investment in Petropavlovsk and their ability to invest on a priority basis in the future". The company has an unusually high number of retail shareholders an estimated 12,000, or 33% of the shareholder register.

Bondholders "resorting to threats"

"These unsecured bondholders also know it is not in their interests or any other party's to force the company to commence insolvency proceedings. To suggest otherwise is mere scaremongering: an attempt to frighten shareholders into accepting a deal that is good only for bondholders. "

Sapinda insists that its proposal, which has been submitted to the company's board and to the bondholders, represents "a fair deal for shareholders and bondholders alike it is also better for the company, as it injects $100m in cash into Petropavlovsk".

It adds: "Sapinda has provided proof of available funds to the company's advisers. The bondholders' proposal, in contrast, results in no new cash into the company.

The fund says it "remains ready, willing and able to execute its proposal, and to meet with all interested parties.

"Rather than seeking to coerce shareholders with a potential insolvency of the company, which will certainly be worse for all parties, the bondholders should engage in discussions with the board and us".

At lunchtime,Petropavlovsk(LSE: POG)shares were down by 0.67p or 4.87% to 13.08p, valuing the company at £25.85m. Having risen to the dizzy heights of 1,365p in April 2010, the company's share price has slumped by nearly 100%.