1st Aug 2019 17:50
(Alliance News) - Moody's Investors Service on Thursday downgraded Petra Diamonds Ltd's corporate family rating to B3 from B2 and changed the miner's outlook to stable from negative.
In addition, the ratings agency affirmed the B3 rating on the USD650 million senior secured notes due in May 2022 issued by Petra Diamonds USD Treasury PLC, a wholly owned subsidiary of Petra Diamonds Ltd.
Moody's explained that its rating action reflects the challenging rough diamond price environment that is weighing on Petra Diamonds' financial performance and creating uncertainty on the pace of deleveraging.
Petra Diamonds' profitability, free cash flow generation and net debt position is weaker than Moody's had expected for the B2 rating level, it said, and in particular net leverage is expected to have weakened in 2019 from the previous year. In Moody's view, a material improvement in the operating environment over the near term is unlikely.
Therefore, Moody's said the B3 rating factors in an increase of free cash flow generation over the next couple of years with low levels of capital expenditure and no dividend payment.
"The current environment will challenge the company as it starts to firm up its strategy for refinancing its May 2022 notes, but at the same time the stable outlook reflects the near three years until that maturity date, which allows some time for capex investments to bear fruit, coupled with a growing cash balance and adequate liquidity," Moody's said in its statement Thursday.
Looking ahead, Moody's said these ratings could be downgraded if rough diamond prices drop further or if there is a deterioration in Petra Diamonds' liquidity profile.
Meanwhile, an upgrade would require an assessment of Petra Diamonds' medium to long-term investment and funding requirements to extend the life of its mines.
Petra Diamonds shares closed 6.6% lower on Thursday in London at 10.41 pence each.
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