De Beers Bailout Unavoidable - PHK

WANETSHA MOSINYI
Staff Writer | Monday December 7, 2009 00:00

 

'De Beers is a significant player in terms of protection of diamond equity and as a country dependent on diamonds, we are bound to honour the agreement that has been made in principle,' he said at a press conference on Friday.

Botswana, however, is itself cash-strapped after diamond exports plummeted to the point where the country had to seek a bailout from the African Development Bank (AfDB), will finance $150 million for its part of the De Beers 'stimulus' package.

The minister said government is mindful of its budget constraints, however for De Beers shareholders to maintain confidence in the diamond industry, they have to see to it that De Beers stays afloat.

'We are in discussion with all our partners on how we can keep the company afloat because the failure of De Beers can have serious consequences on projects (Jwaneng expansion) we are embarking on and the future of the diamond industry.'

The Minister could not specify where Botswana government will get US$150 million (P1 billion) from but indications are that it will not draw from its huge foreign reserves but borrow from multi-lateral banks.  Botswana this year had indicated that it will source additional funds from the World Bank as a top-up from the AfDB $1.5 billion budget support but abandoned the idea after diamond exports started to improve.

Kedikilwe said the stability in the diamond industry is key towards Botswana moving out of recession.

'Although sales and prices improved during the last half of 2009, we are not out of the woods yet.'

Monitor sister publication, Mmegi, first reported last week that the three shareholders of De Beers, one of whom is the government of Botswana, have reportedly agreed in principle to rescue the diamond giant from debt by injecting up to US$1 billion (P6.5 billion) into the company through share placing.

If Botswana decides to take the offer, then it will increase its 15 percent stake depending on how much other shareholders, Anglo American (45 percent) and the Oppenheimer family who owns 40 percent put forward.

However, if Botswana decides not to take the rights issue then its 15 percent stake might be diluted if a fourth party comes into the picture and provides De Beers with the cash injection it desperately needs to cover a $1.5-billion standby debt facility that falls due in four months.

The Permanent Secretary of Minerals, Energy and Water Resources Gabaake Gabaake said at the press conference on Friday that the rights issue which open until March 2010, is at the moment open only for the three shareholders.

Gabaake, who also represents Botswana in the De Beers board however admitted the possibility of a fourth party if any of the three shareholders fail to meet the rights offer.

Anglo American said last Tuesday it has agreed in principle to invest another $450-million in De Beers, Anglo spokesperson James Wyatt-Tilby was quoted on foreign media.

The current rights issue follows the $500-million loan the three shareholders provided the meltdown-hit diamond-mining company in April, in what De Beers MD Gareth Penny described as 'additional subordinated loan funding'.

De Beers has said this week that the new capital raising would lower De Beers' level of external debt, improve the company's capital structure, and place it in a position to take advantage of any new opportunities that might arise, as the diamond market moved out of recession and into recovery mode.