Botswana pays De Beers P1 billion to cut debt

Brian Benza
Staff Writer | Wednesday March 24, 2010 00:00

De Beers last year embarked on the US$1 billion rights issue  together with a capital refinancing that  has resulted in the reduction of its US$3.89 billion debt with several lenders by about a third.

Government has a 15 percent stake in De Beers making it liable to pay the same percentage of the rights issue, while Anglo American Corporation and the Oppenheimer family hold a 45 percent and 40 percent stake respectively.

In a statement released by the top diamond miner yesterday, the $1 billion rights issue was subscribed to in full by the three shareholders in their pro rata equity proportions. 'The funds have been received by the company and have been used to repay debt,' read the statement.

De Beers last year commenced discussions with its lending banks to renew its outstanding US$3 billion borrowing facility, of which US$1.5 billion was due and payable at the end of this month, March 2010.  The refinancing and the rights issue  will reduce De Beers  debt by 28 percent through 2013 from $3.89 billion to $2.89 billion.

Post the completion of the refinancing, 'De Beers now has a capital structure that positions it strongly to take advantage of opportunities in the diamond industry,' said the company.

The decision to bail out De Beers comes at a time when government itself is heavily in debt having posted a P13.39 billion budget deficit last year and  expect to borrow a further P12 billion this year to finance both its recurrent and capital obligations. The P1 billion rights issue comes after government again gave a P570 million shareholder loan to De Beers, according to the 2010/11 national budget statement presented by Finance Minister Kenneth Matambo to parliament last month.

However, it is still unclear how Government funded this rights issue, as the obligation was not factored into either the 2009/10 or the 2010/11 national budgets.Efforts to get a comment from Finance Secretary Solomon Segwagwa were not fruitful by press time.

De Beers says it is extremely appreciative of the support it has received from both its banking partners and its shareholders. The company says it also believes that the fundamentals of the diamond business remain strong in both mining and marketing, and that the company is now well positioned to generate good returns to its investors built on a sustainable model.

Nicky Oppenheimer, Chairman of De Beers Group and managing shareholder commented that, 'The equity investment and the successful completion of the refinancing process is a clear vote of confidence by the lenders and all three shareholders in the management of De Beers and in the company's strong potential for significant growth.'

De Beers Group CEO, Gareth Penny, reflected on the announcement, saying that, 'As we emerge from the recession in 2010, the completion of the refinancing process enables De Beers to take advantage of a number of exciting opportunities for growth up and down the diamond pipeline.  We are deeply appreciative of the support shown by our shareholders and banking partners who share our confidence in the future and our belief that this is an exciting time for De Beers.'