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; $75million open offer is a monstrous red herring – you only get 8.2%

By Ben Turney

16 March 2015 08:17

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Over the weekend, respected oil investor Paul Curtis (@paulcurtis123) sent me a spreadsheet, which provided detail to the number of shares Afren (AFR) proposes to issue under its recapitalisation plan. Paul’s efforts expose one startling revelation. The planned $75million open offer is a monstrous red herring. Below I explain why.

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Comments

steve

16 March 2015, 09:42

Thanks Ben – I put pretty much exactly this calculation as a comment on your article on Friday evening – it looks to me that someone at Afren got their maths wrong.
Jason

16 March 2015, 10:50

I calculated a similar (unbelievable) rights issue figure. Given the c13p open offer price figure would have to have been deeply discounted too it would require a sp somewhere closer to 20p. If sp was c20p it would have been far better to have gone for a larger equity placing, not defaulted, and scrap steps 1-3 & 5!

The bb lunatics will pounce on this as evidence that this mega dilution is obviously a mistake / smoke screen and that there’s a queue of bidders just desperate to give them a £1 a share.
Ben Turney

16 March 2015, 11:33

@steve – apologies, I missed that from you on Friday. You did do pretty much the same calculation. It is a gross mistake on the part of Afren

@Jason – for their sake I hope they don’t.
Sweet Karolina

16 March 2015, 12:29

The new target price from JP Morgan of 3.62p for Dec 15 looks to be spot on as that would be after the 10:1 consolidation
Steve Brown

17 March 2015, 04:32

I can’t promise I have this right, but if we assume that all the bondholders act as one it seems that Afren is effectively getting rid of $230m of actual debt, borrowing a shedload more that has to be repaid, and issuing a total of nearly 12 billion new shares. Since all the new debt is excruciatingly expensive and if it gets paid back the bondholders are laughing, then the bottom line is that 12 billion new shares are worth $230m. Call it 2p a share and that’s a fair price for Afren according to the bondholders.

Nice oilfields, very difficult country, very dodgy previous management, still far far too much debt. Whoever gets appointed CEO is either clueless or extraordinarily brave. This won’t end well.