Petropavlovsk : Update on Refinancing

THIS ANNOUNCEMENT IS NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT.

16 September 2014

Update on discussions to refinance the Group's 4% Convertible Bonds due 15 February 2015

Petropavlovsk PLC (the "Company" or together with its subsidiaries the "Group") is in continuing dialogue with the Group's stakeholders and third parties in respect of the refinancing (the "Refinancing ") of its 4% Convertible Bonds (ISIN: XS0482875811) due 15 February 2015 (the "Existing Bonds ") and this statement is an update to the market on the status of these discussions. 

The Company's continuing goal remains to achieve a full repayment of the Existing Bonds for cash at par value upon maturity.  However, in light of the current market and geopolitical environment, this may not be achievable.  Accordingly, the Company has been working on the issue of new convertible bonds (the "New Bonds ") which would be offered to the holders of the Existing Bonds (the "Bondholders ") (by way of an offer, the "Exchange Offer ") in exchange for the Existing Bonds but with a cash element, the size of which would depend upon the results of the Company's proposed equity rights issue ("Rights Issue ").  In structuring the Refinancing, the Company is seeking to take into account the interests of all the Company's stakeholders insofar as possible.  Details of the current position are outlined below.

Discussions with Senior Lenders

The Company continues to progress negotiations on the terms of the Refinancing with Sberbank and VTB, its senior lenders (the "Senior Lenders ").

The Senior Lenders have made clear their desire that agreement on the terms of the Refinancing be completed as soon as possible.

In assisting the Company's efforts to effect the Refinancing, the Senior Lenders have indicated a willingness to grant relaxation and/or holidays of certain existing financial covenants (it should be noted that the next financial covenant testing date is 31 December 2014) in their loan facility agreements on a conditional basis. In particular, one of the Senior Lenders has stipulated that any cash paid to the Bondholders as part of the Refinancing, including any fees paid in connection therewith, must come from new funds raised by the Company and not from the Company's existing cash resources.

At the same time, one of the Senior Lenders has indicated that it may require a partial repayment of its existing facilities, as well as an alignment of the security package across the remaining loan facilities.

Indicative Refinancing Structure

In order to fund the cash element of any Exchange Offer, any repayment to the Senior Lenders as part of the Refinancing, and the expenses of the Refinancing and to provide additional capital for business purposes, the Company intends to implement a Rights Issue. The ultimate size of the Rights Issue, which would supplement the Group's current cash resources, will be governed by the demand generated from shareholders and third party underwriters. Certain existing shareholders have already indicated their support for the Rights Issue and the Company continues to follow up underwriting support from existing stakeholders as well as from third parties that have expressed an interest.

The amount of cash available for Bondholder repayment pursuant to the Exchange Offer, and thus the size of any issue of New Bonds, will be dependent on the net proceeds of the Rights Issue (after expenses and any payment to the Senior Lenders and funds retained for business purposes).

Discussions with Existing Bondholders

Further to the more general discussions which the Company has had with the holders of the majority of the Existing Bonds, the Company has now had more detailed discussions with Bondholders representing around 20% of the principal amount outstanding. These holders have agreed to be restricted from trading in the Group's securities in order to review the proposed terms for the New Bonds.

The majority of those holders, or 18% by value, have indicated to date a willingness to support a transaction based on new terms set out below:

Maturity: October 2019

Coupon: 7.5% per annum

Size: US$310.5 million less net Rights Issue proceeds (after deduction of expenses, any funds repaid to the Senior Lenders and funds retained for business purposes)

Conversion Price: 60 - 65p

Adjustment provisions: Standard market terms for convertible instruments (including for the Rights Issue)

Status: unsecured

Next steps

The implementation of these proposals will require both shareholder and bondholder approvals or acceptances, in addition to Senior Lenders' and any regulatory consents. The Company is working on, and intends to publish, documentation to seek these approvals and implement the Refinancing in due course.

Commenting on the release, Peter Hambro, Chairman said:

"I am pleased to note that we have received a number of unsolicited approaches from third-party investors and this gives comfort that the successful half-year results that we recently announced have encouraged greater confidence in the Group. I welcome these expressions of interest in supporting the Refinancing by taking part in underwriting a Rights Issue and hope that others who are authorised to do so may also come forward and make contact with Bank of America Merrill Lynch. I am also glad that a substantial majority of the Bondholders to whom we explained the possible terms of the New Bonds to be offered as part of any exchange offer have, on an uncommitted basis, found these acceptable."

Enquiries

 Petropavlovsk PLC

Alya Samokhvalova, Group Head of External Communications,

11 Grosvenor Place, London, SW1X 7HH

T:  +44 (0) 20 7201 8900 | E: as@petropavlovsk.net

Bank of America Merrill Lynch

Corporate Broker

Simon Davy, Managing Director,

2 King Edward Street, London, EC1A 1HQ

T:  +44 (0) 20 7995 3759 | E: simon.davy@baml.com

This announcement is for information purposes only and does not constitute an invitation or offer to buy, sell, issue, underwrite, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire or subscribe for any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.  Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions.

In particular, this announcement does not constitute or form part of any offer to buy, sell, issue, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire, or subscribe for, any securities in Australia, Canada, Japan or the Republic of South Africa or any other jurisdiction into which such offer or solicitation would be unlawful.  No public offering of the securities referred to herein is being made in the United Kingdom, Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction.

This announcement is not an offer of securities for sale in the United States. The securities referred to above have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "US Securities Act"), and may not be offered or sold in the United States absent registration or an exemption from registration as provided in the US Securities Act and the rules and regulations thereunder.  There has not been and will not be a public offer of the securities in the United States.

The distribution of this announcement in certain jurisdictions may be restricted by law.  No action has been taken that would permit an offering of any securities or possession or distribution of this announcement or any other offering or publicity material relating to such securities in any jurisdiction where action for that purpose is required.  Persons into whose possession this announcement comes are required to inform themselves about, and to observe, such restrictions.  Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward-looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including the US dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, political and economic uncertainty. Save as required by the Listing and Disclosure and Transparency Rules, the Company is under no obligation to update the information contained in this release.  Past performance is not a guide to future performance.

This announcement, to the extent it constitutes an invitation or inducement to engage in investment activity for the purposes of section 21 of the Financial Services and Markets Act 2000 (as amended), is only directed at persons outside the United Kingdom and persons in the United Kingdom (i) having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order") or (ii) who are high net worth entities falling within Article 49(2)(a) to (d) of the Order, or (iii) other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as "relevant persons").  This announcement must not be acted or relied on in the United Kingdom by persons who are not relevant persons.   

In addition, if and to the extent that this announcement is communicated in, or an offer of the securities to which it relates is made in, any EEA Member State that has implemented Directive 2003/71/EC as amended by Directive 2010/73/EU (together with any applicable implementing measures in any Member State, the "Prospectus Directive") before the publication of a prospectus in relation to the securities which has been approved by the competent authority in that Member State in accordance with the Prospectus Directive (or which has been approved by a competent authority in another Member State and notified to the competent authority in that Member State in accordance with the Prospectus Directive), this announcement is only addressed to and directed at persons in that Member State who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive (or who are persons to whom the offer may lawfully be addressed) and must not be acted on or relied on by other persons in that Member State.

Merrill Lynch International, which is authorised in the United Kingdom by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority, is acting exclusively for the Company and no-one else in connection with the Refinancing.  It will not regard any other person as its clients in relation to the Refinancing and will not be responsible to anyone other than the Company for providing the protections afforded to its client, nor for providing advice in relation to the Refinancing, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

This announcement has been issued by and is the sole responsibility of Petropavlovsk PLC.  No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Merrill Lynch International or by any of its respective affiliates or agents as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

The content of any websites referred to in this announcement does not form part of this announcement.