Troubled African oil company Afren (AFR) secures an agreement with most of its creditors but its not good news for shareholders. The recapitalisation of the company will see existing holders left with around 11% of the fully diluted share capital of the company. The shares slip a further 17.5% to 5.34p, whereas a year ago Afren stock changed hands for more than £1.50.
The company's bondholders and lenders have agreed to pour $300 million into the group by the end of June. A group representing 42% of Afren's 2016, 2019 and 2020 bondholders have pledged to provide $200 million in interim funding.
They have also consented to swap 25% of their existing debt for equity and for the rest to be extended to 2019 and 2020.
The extra $100 million will come from a refinancing of this debt, in a plan backed by another group representing two-thirds of the value of Afren's $300 million credit facility.
The so-called Ebok facility – which is secured to the Ebok field in Nigeria - has also been extended to 2019 and the group is to run a $75 million equity offering to all shareholders.
Afren says it will postpone discretionary spending until the oil price improves and is guiding for net production of between 29,000 and 36,000 barrels of oil equivalent per day in 2015. It also reveals 2014 revenues of $900 million and impairments on its assets of $2 billion.
An extraordinary general meeting will be called to seek approval for the refinancing and the company urges support form its investors saying the alternative would be to lose the entire value of their holding.
Westhouse Securities reiterates its 'sell' recommendation and 2p price target today and Edison Investment Research analyst Will Forbes comments: 'A terrible week for mid-cap oils. First Cairn’s (CNE) Indian tax bill, then Soco’s (SIA) reserve downgrade. Now Afren’s recapitalisation has resulted in existing shareholders holding (a likely) 11% of the fully diluted share capital of the company, which has today announced a $2 billion assets impairment.'