Afren Shares Crash on Liquidity Fears

By John Lee.

Shares in Afren plc have crashed by 67 percent by lunchtime on Tuesday, following an announcement from the company regarding its financing.

The full text of the announcement follows:

Afren plc (“Afren” or the “Company”) provides an update regarding the review of its capital structure, liquidity and funding requirements announced on 20 January 2015.

In light of the significant dislocation in the industry and related financing markets resulting from the rapid decline in oil prices, the Board has been reviewing the funding and liquidity requirements of the business and seeking to address how it manages the overall leverage position of the Company.

The Company had a cash balance of approximately US$235 million at 31 December 2014. Liquidity available to the Company is significantly lower as a result of restricted and segregated cash balances in place to address operational requirements. The Company’s near term cash flow is also impacted by capital expenditure incurred in late 2014 before operational changes had been implemented to adapt to the current lower oil price environment.

As previously announced, Afren has initiated negotiations with the lenders of the US$300m Ebok debt facility with a view to obtaining a deferral of the US$50m amortisation payment due on 31 January 2015.

In addition, the Board is considering whether to utilise a 30 day grace period under its 2016 bonds with respect to US$15m of interest due on 1 February 2015 while the review of the capital structure and funding alternatives is completed.

These actions are being taken to protect the immediate liquidity position of the Company while it seeks funding to address its additional requirements.

The Company has been advised that an ad hoc committee of its largest bond holders has been formed. The Company has initiated discussions with the advisers to the committee regarding the immediate liquidity and funding needs of the business.

The Board has reviewed its business plan with the aim of minimising its funding requirements in the current oil price environment to focus on the development of the Company’s core assets in Nigeria. 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. The Company will be having discussions with its existing stakeholders and new third party investors regarding recapitalising the Company.

The Board is implementing efficiency and cost optimisation measures to improve its liquidity position. Alvarez & Marsal has been engaged to provide services as Chief Restructuring Officer.

Afren continues to be in discussions with SEPLAT Petroleum Development Company plc (“Seplat”) regarding a possible combination with Afren.

There can be no certainty that an offer will be made or as to the terms of any offer.

Afren notes that in accordance with Rule 2.6(a) of the Code, by no later than 5.00 p.m. on 30 January 2015, Seplat must either announce a firm intention to make an offer for Afren under Rule 2.7 of the Code or announce that it does not intend to make an offer for Afren, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Panel in accordance with Rule 2.6(c) of the Code.

Further announcements will be made in due course.

(Sources: Afren, Yahoo!)

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