Afren shares plunge more than 65% on funding crisis

Shares in Afren plunged more than 65 percent on Tuesday after the Nigeria- focused oil group revealed it needed to raise more than its market value in new equity to repair its battered balance sheet following sharp falls in crude prices, reports Bloomberg.

The London-listed oil and gas producer, which had a market capitalisation of more than £190 million based on its closing share price on Monday, said that although the company had about $235 million of cash, it would require £200 million or more of new equity.

Shares in the company, which last year sacked its chief executive and chief operating officer after an investigation into the receipt of unauthorised payments, were down almost 67 percent at 5.85p by midday in London on Tuesday. Oil producers and services companies worldwide have been grappling with a 60 percent drop in crude prices since last summer.

Afren blamed the fall in oil prices for its funding crisis, which has left it unable to meet its repayment obligations to lenders and capital expenditure requirements in Nigeria. The company is negotiating with lenders to delay a $50 million debt repayment due by the end of January.

Read also: Debt-laden Afren will not make $15m interest payment on 2016 bonds

Afren 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.”It added: “The company will be having discussions with its existing stakeholders and new third party investors regarding recapitalising the company.”

A possible rights issue to rescue Afren’s financial position and prevent default with lenders follows an unpriced approach for the company from fellow Nigerian oil operator Seplat in December.

A deadline set by UK regulators for Seplat to make a formal offer by January 19 has been extended to Friday of this week. Afren disclosed it had hired turn round specialist Alvarez & Marsal, and that talks led by executive chair- man Egbert Imomoh were taking place with some of the company’s largest bond holders. Afren’s gross debt stood at about $1.15 billion at the end of September.

Nearly $400 million of debt — a mix of loans and bonds — are due to mature next year with a further $610 million of bonds scheduled to mature in 2019 and 2020. In addition to seeking a delay on the repayment of the $50 million of debt due at the end of this month, Afren said it may need to exercise a 28-day grace period for interest payments of $15 million on $253 million of bonds maturing next year.