Troubled oil producer Afren has lost half of its value after admitting it needed to raise funds in excess of its market capitalisation to avoid running out of cash.
The company has suffered a number of problems, including finding unauthorised payments which led to the dismissal of a number of top executives and suspending operations in Iraq Kurdistan after finding dry wells.
It has also been hit by the slump in the crude price, and despite the prospect of a possible bid from Nigeria’s Saplat, it now faces liquidity problems. It has net debt of some $720m including finance leases.
The company is in talks with lenders of a $300m debt facility to try and defer a $50m payment due at the end of the month, and is considering whether to use a 30 day grace period with respect to $15m of interest due on its bonds on 1 February.
It has also begun discussions with a newly formed committee of bondholders, as well as continuing its talks with Seplat. It said:
Assuming the company’s current debt structure remains unchanged, there is an equity funding requirement which is likely to be significant and in excess of the company’s current market capitalisation.
New funds will be required to meet interest and principal repayments, working capital and a reduced capital expenditure programme.
Its shares have slumped 9.66p or nearly 55% on the news to 8.01p, wiping £106m off its market value. Westhouse Securities analysts Jamal Orazbayeva and Mark Henderson said:
We have previously flagged the balance sheet risk for Afren and it is now in a position where it seeks funding to address its additional requirements. Assuming its current debt structure remains unchanged, there is an equity funding requirement which is likely to be significant and in excess of its current market capitalisation (£196m).
SP Angel said:
Despite the painful introspective that the company has undertaken recently, there was always a sense that the underlying business was managed in a way that provided some measure of resilience.
It is somewhat shocking then to hear that the debt needs to be restructured and scheduled payments deferred. Whilst we accept that the magnitude of the downward spike in the oil price has been dramatic, we must also try to understand why the risks in the business were allowed to build to such a level.
There is little doubt that a fire sale may now ensue.
