Imperial Energy, the Russia-focused oil and gas group, has seen its shares slump this morning after news that the credit crunch has forced it to drop plans to borrow $600m.
Instead it plans to issue equity to raise the money. It had been talking to a consortium of banks about debt financing - for capital expenditure and to refinance a $200m loan which matures in November. However, the company said, "the current state of the debt markets and Imperial's relatively short history of production provides a significantly more challenging environment to raise debt finance on acceptable terms."
The idea of more shares being issued has left it 22.5% lower at 981p.
Oriel Securities analyst Richard Rose said: "Imperial has entered into an underwriting agreement with Merrill Lynch and Hoare Govett to cover a potential US$600m rights issue. The underwriting agreement is in force until 1 July 2008 but no price has been given. At the same-time an operational update confirmed the weak production numbers in the first quarter but the year-end target of 25 thousand barrels of oil per day was reaffirmed.
"There is no doubt that uncertainty over recent production levels will have contributed to nervousness by lending institutions over the company's borrowing base. We continue to believe the shares look good value long-term on fundamentals but are cautious awaiting news that production is back on-track and further pricing details of the potential rights issue."
The company had a spat with Oleg Mitvol, the deputy head of Russia's environmental watchdog, last year about its licence obligations but since then it has been granted extensions for the contracts.
Overall the market seems fairly resilient so far, with the FTSE 100 4.6 points higher at 5857.2.
Several of the banks have continued their revival after the UBS write-offs yesterday convinced some investors the credit crunch might be nearing an end (they should perhaps talk to Imperial Energy).
Barclays and Royal Bank of Scotland are up around 3%, but Alliance & Leicester is down 2p at 550.5p and Lloyds TSB fell 5.25p to 475p.
In a note analysts at Deutsche Bank - which itself wrote off £2bn yesterday - said: "We believe bank sentiment is being driven by: (1) Fears of another bank demise, and (2) the earnings impacts of the liquidity crunch. Market reception to UBS' rights issue, recent risk index rallies and central bank interventions sees relief over the first issue and may drive further short covering. But we believe UK consumers have yet to reflect the implications of 7% plus cost mortgages. We expect further earnings downgrades. Top picks are Lloyds TSB (solid funding, cost control) and Barclays (recovering capital perceptions, earnings growth, valuation)."
