Uranium mining company Paladin Energy raised $100 million through a convertible bond issue on Thursday, taking advantage of a rising Australian stock market to build up funds ahead of a bond repayment due later this year.
The deal was launched with a 6.5% to 7.5% coupon and a 25% to 30% conversion premium above the February 11 closing price of A$0.370 per unit, according to a term sheet seen by FinanceAsia. The bond has a five-year maturity and no put option.
The initial conversion price was $0.356 to $0.371 per unit, with the first coupon expected to be paid on September 30, the term sheet said.
The bonds eventually priced at a 7% coupon and a 25% conversion premium, according to a source close to the deal. The bonds are due on March 21, 2020.
JP Morgan, the sole global coordinator and bookrunner, launched the bond deal with a base deal size of $100 million and an upsize option of $50 million. The upsize option was not exercised but the sourced noted that strategic partners will have the option to purchase up to $50 million of additional bonds up until March 12.
Paladin will use the proceeds to buy back some of the bonds it issued five years ago. There are still $300 million-worth of bonds outstanding and they mature this November.
It was a small deal with only 20 lines participating in the book, which was made up mainly of outrights and a few hedge funds. The majority of the outrights were located in Europe, although there was also participation from Asian funds as well, the source familiar with the matter said.
There was no stock-borrow available on the convertible, which in theory should have left little incentive for convertible bond-focused hedge funds to invest as they couldn’t hedge, a second source not on the deal said.
“This was very much a no-borrow trade,” the first source told FinanceAsia. “It’s a bit of a special situation, as the company is using the proceeds to buy back existing bonds.”
The lack of stock-borrow did not deter all hedge funds from participating, however, with the first source noting that most of the investors who participated were either existing bond-holders or stock-holders in Paladin that have bullish long-term views on the company. “There were a number of investors looking to switch from the old convertible to the new convertible,” the first source said. “There’s no borrow on the company, so [all of the investors] took a long-term view.”
The S&P/ASX 200 benchmark index of Australian shares is up 7% so far this year. Paladin, which is listed on the Australian, Toronto, and Namibian stock exchanges, has projects in Australia and Africa.
Earnings decline
Paladin Energy reported a net loss of $126.9 million for the six-month period ending December 31, compared with a net loss of $275.1 million for the same prior-year period. Revenues declined by 36%, totaling $109.7 million in the second half of 2014 compared with $171.4 million in the second half of 2013.
Spot uranium prices were very volatile last year, having jumped from $28 per pound in the summer to $44 per pound by mid-November, Paladin said in its earnings statement. They then fell to $35.50 per pound in December, as near-term demand decreased and a number of suppliers lowered prices to complete end-of-year sales.
Still, a number of factors could support uranium prices this year, not least Japan's nuclear reactor restart programme after the government of the Kagoshima Prefecture okayed the restart of two reactors at the Kyushu Electric Power Company, Paladin noted. Operations will likely start in the second quarter this year, it said.
Paladin’s convertible bond issue comes just over two weeks after Australian property fund manager Cromwell Property Group raised €150 million through a euro-denominated note with a five-year maturity and no investor put. Proceeds will go towards Cromwell’s €145 million acquisition of Valad Europe, a European property investments manager.
