Stake building by US asset management giant Capital Group fails to bolster struggling Kurdistan-focused oil play Gulf Keystone Petroleum (GKP) ahead of a refinancing vote on 5 August.
Capital Group bought 54 million shares, worth around £2.2 million at current prices, increasing its stake to 12%.
Shareholders in Gulf, including Capital Group, are in line for heavy dilution after the business defaulted on interest payments in May and proposed a refinancing earlier this month.
Lower oil prices and geopolitical unrest played a role in Gulf’s default and the need to strengthen its balance sheet, according to chairman Andrew Simon who explained the need for a refinancing on 14 July.
Gulf currently has around $600 million (£458 million) of debt.
Shareholders’ stakes in the business will shrink because the terms of the refinancing involve a debt-for-equity swap which will see bondholders write off loans made to the company in return for an equity stake.
UNDERWRITTEN EQUITY RAISE
Existing shareholders will be left with around 14.5% of the business after a $25 million (£19 million) equity raise is taken into account. Bondholders will own the remaining 85.5%.
Major shareholder Capital Group has already said it will underwrite the equity issue, meaning it will buy rights issue shares which are not taken up by existing shareholders.
Investors in Gulf Keystone are set to meet in Geneva on 5 August to confirm the refinancing plans.
Shares in the business trade 5.5% lower at 4.4p.
POTENTIAL OF ASSETS
'Without the restructuring and the improved liquidity delivered by the transaction, the company cannot avoid insolvency or capture the significant future potential of the Shaikan field,’ chief executive Jón Ferrier on 14 July.
‘In my view this is the best possible transaction for existing stakeholders in these very challenging circumstances, and I urge stakeholders to support it.
‘For the Shareholders who are able, the opportunity exists to partly offset the dilution of the necessary debt equitisation and capture any future increase in equity value by participating in the open offer.
‘We acknowledge the cooperation of our significant Guaranteed Noteholders and Convertible Bondholders, and are grateful for the continued support of our current largest Shareholders, Capital.’