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Rating Action:

Moody's downgrades Petra to B2, rating on review for further downgrade

18 Oct 2017

London, 18 October 2017 -- Moody's Investors Service has today downgraded Petra Diamonds Limited's (Petra) corporate family rating (CFR) to B2 from B1 and its probability of default rating (PDR) to B2-PD from B1-PD.

At the same time, Moody's has downgraded to B3 from B2 the rating assigned to the $650 million senior secured notes due 1 May 2022 and issued by Petra's wholly owned subsidiary, Petra Diamonds US$ Treasury Plc. The notes are guaranteed by Petra and some of its subsidiaries.

The full list of affected ratings is provided at the end of this press release.

All the ratings are on review for further downgrade, because of the near-term liquidity risk that Petra faces. In particular, based on Moody's forecasts, it is uncertain as to whether the company can meet its covenant tests on 31 December 2017 and 30 June 2018, without its banks providing either a waiver or reset of its covenants, or a combination of both.

"The downgrade, along with the possibility of a further downgrade if covenant pressure is not addressed, reflects our expectation that Petra's credit metrics will be more in line with a B2 rating over the next 18 months, and our concerns over the strength of Petra's liquidity profile over the next nine months," says Douglas Rowlings, a Moody's Vice President and Senior Analyst.

"If Petra breaches its covenant tests on 31 December 2017, and its banks recall the facilities, the company will not have sufficient liquidity under Moody's forecasts to meet its operating needs," adds Rowlings.

RATINGS RATIONALE

The downgrade of Petra's CFR and PDR to B2 and B2-PD is based on Moody's forecasts indicating that Petra's net debt/EBITDA will exceed 2x over the next 18 months, and its EBIT/interest expense will fall below 4x over the same period. Such results do not meet the parameters set for a CFR of B1 and PDR of B1-PD.

Moody's forecasts take into account EBITDA generation and free cash flow generation that will ramp-up at levels that are lower than Moody's had previously expected, due to the roll-over impact of recent operating challenges Petra has faced.

These challenges include:

(1) The delay in the commissioning of a new ore mill and C-Cut at its Cullinan mine and Sub Level Cave at its Finsch mine;

(2) Ongoing challenges at its Williamson mine, where the company is still in negotiations with the Tanzanian authorities to resolve a number of disputes which are impacting cash flow generated from the mine; and

(3) Production disruption at its Finsch, Koffiefontein and Kimberley operations because of the wage negotiations and subsequent strike action by miners at these mines.

Moody's points out that with the exception of Williamson mine, the company has overcome all other challenges mentioned above.

Moody's review will focus on Petra's ability to reach an agreement with its banking consortium to address pressures to meet its bank covenant tests on 31 December 2017 as highlighted by Petra in its 9 October 2017 announcement. In addition the review will also factor the degree of headroom Petra will have in meeting its 30 June 2018 covenant. Moody's expects that over the next three months Petra will be in a position to provide more definitive direction on the progress of its discussions with its banking consortium.

Petra has in the past successfully obtained waivers and amendments to its banking covenants from a consortium of South African banks, with which it has established relationships dating back more than 10 years.

A default on its bank facilities will not constitute a default on its $650 million senior secured notes due 1 May 2022, assuming that Petra can still make timely payment on its coupon commitments for the notes. Petra's debt obligation agreements also do not contain cross-acceleration of debt repayment clauses or cross default clauses.

List of affected ratings:

Downgrades:

..Issuer: Petra Diamonds Limited

.... Corporate Family Rating, Downgraded to B2 from B1; Placed Under Review for further Downgrade

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD; Placed Under Review for further Downgrade

..Issuer: Petra Diamonds US$ Treasury Plc

....Backed Senior Secured Regular Bond/Debenture $650 million 7.25% due 1 May 2022, Downgraded to B3 from B2; Placed Under Review for further Downgrade

Outlook Actions:

..Issuer: Petra Diamonds Limited

....Outlook, Changed To Rating Under Review From Positive

..Issuer: Petra Diamonds US$ Treasury Plc

....Outlook, Changed To Rating Under Review From Positive

The principal methodology used in these ratings was Global Mining Industry published in August 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Local Market analyst for these ratings is Douglas Rowlings, +971-4-237-9543.

Petra Diamonds Limited is a rough diamond producer listed on the Main Market of the London Stock Exchange. The company is registered in Bermuda and domiciled in Jersey.

Petra has controlling interests in five mines (four in South Africa and one in Tanzania), extensive tailings operations in Kimberley (via its 79.5% interest in the Kimberley Ekapa Mining joint venture), and an exploration programme in Botswana.

During the financial year ended 30 June 2017, Petra produced 4 million carats of diamonds, accounting for less than 5% of the total production globally by volume and value at 30 June 2017.

For the financial year ended 30 June 2017, Petra generated $477 million in revenues and $158.5 million in terms of Moody's-adjusted EBITDA. As of 17 October 2017, the company had a market capitalization of GBP422.9 million ($557.8million).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gianmarco Migliavacca
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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