Uranium producer Paladin Energy Ltd (ASX: PDN) has seen its share price plunge 13% today after announcing plans to restructure its balance sheet.
As no progress is being made on the potential sale of its 24% interest in the Langer Heinrich Mine in Namibia, management has proposed the restructure in order to tackle the upcoming maturity of its outstanding US$212 million 6% Convertible bonds which are due 30 April 2017.
The restructure would see the maturity date of all existing outstanding convertible bonds worth US$362 million pushed out as far as 2022 and 2024. In addition to this US$145 million of new shares will be issued to bondholders at 5 cents apiece. This is a significant discount to the last close price of 9.5 cents.
The plans are ambitious and far from a foregone conclusion. Paladin advised that it is subject to consent from Électricité de France and existing bondholders, the approval of shareholders, the successful equity raising of US$75 million, and regulatory approvals.
Whilst it is good to see the company putting in plans to safeguard its future, it will do so by diluting existing shareholders considerably. Still, I guess it is better to have dilution than see the company go under.
As far as I'm concerned Paladin is not investable at this stage. I believe this proposed balance sheet restructure will only have a chance of success if uranium prices lift off their 12-year lows. If prices fail to rise then there could yet be further problems for shareholders in the future.
Anyone looking for exposure to the energy market might be better served with an investment in Caltex Australia Limited (ASX: CTX) or AGL Energy Ltd (ASX: AGL).
