Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Afren RNS explained; why this stock has to be avoided (for now at least)

By Ben Turney

13 March 2015 07:25

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There is a slight chance that Afren (AFR) might prove to be a recovery gamble worth taking at some point. That time is most definitely not now. Careful reading of this morning’s complicated RNS from the company, concerning its proposed recapitalisation, confirms that whatever happens existing shareholders will be left with next to nothing. As unpalatable as some might find this, the numbers are categorical and at 5p (last seen) only widespread misinterpretation of today’s announcement sustains the current share price. Below I explain why.

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Comments

DUCK AND DIVE

13 March 2015, 09:55

Thank you, Ben – that’s a valuable primer and I’m sure the BBMs will be very grateful for it.
CPPH

13 March 2015, 11:27

Fantastic article Ben. Really clear and informative. Thanks
Steve

13 March 2015, 15:03

As far as I can see from the announcement and presentation either someone at Afren has their sums wrong or they are being willfully misleading by saying the open offer is “up to $75million”.

The open offer happens only after the debt for equity and subsequent doubling of the shares for the new senior notes. At this point existing shareholders own 10%. Shareholders only own 11% if they are the only ones that fully subscribe for the open offer (I.e. Debt for equity shareholders and new senior shareholders don’t even though they are eligible) and this is after further 15% dilution after the open offer for the PPN subscribers and new senior note holder early incentive.

This means that maximum number if shares that can be issued through the open offer is 3% of the total post debt for equity and doubling for new senior noteholders – at which point will also know existing holders own 10%.

So from that we can calculate that the open offer will be a maximum of 30% of today’s shares – as there are around 1.2bn shares in issue today, that means the open offer is for max 400milljon shares.

So perhaps Afren can tell us how they plan to raise up to £50million ($75million) through issuing a maximum of 400million discounted shares, when the share price today is 4.5p, the debt to equity swap is being done at around 3p and the share capital is being doubled, likely at a nominal price less than 1p.

To raise the £50million Afren would have to do the 400 million shares at 12.5p – they will be lucky to get 10% of that.