Banks To Delay De Beers Covenants Tests

Banks providing loans to De Beers have agreed to delay tests on the diamond mining giant's debt covenants while it renegotiates a $1.5 billion loan facility, Bloomberg reported on Sunday.

“We pushed those tests back while we renegotiate the loan renewal,” spokesman David Prager told the newspaper in a phone interview. “We entered the renewal talks earlier than we might have expected given the difficult trading conditions.”

The talks on the loan facility are expected to conclude “later in the year,” Prager said. De Beers has a 2012 deadline to pay part of its debt. According to industry analyst Chaim Even-Zohar, "the De Beers lending bankers’ consortium reviews every six months whether the company’s indebtedness is still in line with the parameters agreed in the borrowing agreements. Apparently, it has become clear to De Beers that there is a probability that when the credit line is being reviewed in September, the company may find itself in breach of its loan agreement." 

Being in breach of its loan agreement, Even-Zohar continues, is a euphemism for being of “default.” However, as long as the banks don't conduct a review, the company is not in breach of the loan agreement, which may explain why it sought to delay it.

The main lending banks include the Dresdner Bank, Royal Bank of Scotland, ABN AMRO, HSBC, as well as others.