Red Flags at Night – Afren sticks two fingers up at shareholders facing wipe-out

Comments

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   DUCK AND DIVE

   20 June 2015, 04:37

   Thank you, Nigel. Why hasn’t the SP fallen further? As the SP stands – 1.6p – PIs can forward sell their OO entitlement and make a nice 50%+ profit. But presumably that will disappear on Monday’s open.

   Given that most BBMs can’t understand even plain English, they clearly won’t have a clue on this. Presumably ShareProphets will revise its 1p target price to help them out?

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   Paul Curtis

   20 June 2015, 06:59

   The only new news is the 1p placing price.

   This values new Afren at c. £500m which is crazy?

   Hence no one will subscribe.

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   drunken sailor

   20 June 2015, 09:13

   Someone please check my maths. 4 OO for every 9 for 1.1 Bn existing shares is only about 490M shares @ 1p that is £4.9M at an exchange rate of 1.5 that is about $7.5M and not $75M.

   The OO is capped at just under 1 Bn shares to give 15% ,that would raise $15M but would rely on everyone subscribing for double their entitlement on average!

   If the OO is fully subscribed with the 1Bn shares there will be just under 14 Bn shares. At OO price of 1p that makes new AFREN capitalised at £140M

   If nobody subscribes to the OO then I concur with 8.5% being what existing shareholders get

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   drunken sailor

   20 June 2015, 11:11

   Actually for something as complex and fundamental to the survival of the company as this, inadvertently no doubt, Afren have done the responsible thing by releasing after hours on Fri thereby giving shareholders all weekend to read it thoroughly. Indeed all such announcement should be made post close on Fri, but there should be an announcement earlier in the day saying we will be releasing important information post close.

   As it is, even experienced commentators (like Evil) have missed the fact that the OO price of 1p is a massive improvement on the original proposal, which effectively worked out at 13p and when I worked out what the more recent changes meant I came up with 4.7p.

   I think AFREN want to obscure the deal they have done for existing shareholders firstly from the bondholders whose D4E works out at 3p per share, and they also want to obscure it from shareholders as they do not really want too many people realising just how good a deal it is compared to what it could have been. The 4 for every 9 is very strange but again it seems to be an attempt to reduce the take up.

   Personally I think even at 1p AFREN is a gamble on the oil price recovering fairly soon and unless there is a major war in the Middle East (entirely possible) I do not see a swift recovery. Economic producers are overcoming the reduced revenue from the low price by pumping more and they can sustain that for a long time. The restructuring does not give Afren the capital investment money it needs and without capital investment it will go into a spiral of ever decreasing production which leaves less money for capital investment and so on.

   Finally Share Prophets has been calling Afren at 1p for ages – well done! spot on yet again.

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   nigel somerville

   20 June 2015, 14:46

   FWIW, here is my maths on Afren shares. I’ve prob missed something, so do please correct if wrong!

   Existing shares: 1.1bn

   Post D4E total shares goes to 5.5bn, 4.4bn to 25% of debt, plus original 1.1bn. 4.4bn shares issued for $234m (c. £150m) so effectively conversion is at 3.4p but….

   Issue to new debt – another 5,5bn shares so total = 11bn.

   Open offer @1p (par) on 4 for 9 basis up to £49.2m = 4.92bn shares. In theory we are told that an excess application facility will allow the issue of up to enough shares for existing shareholders to hold 15% of the total, following the offer. Maths is a bit complicated therefore, since Existing shares are defined as at date of announcement. We are told that Existing shareholders will be limited to max of 984.5m new shares. Therefore D4E shareholders and New Senior Debt shareholders can take up to c. 4bn. Take-up questionable on both counts! With the 15% cap in place, it appears that max shares to Existing Shareholders is therefore limited also by take-up by bondholders. Max shares in issue following open offer is therefore about 16bn, but could be as low as 11bn if no shares taken up.

   Yet another issue of shares to bondholders (new Senior Debt) following open offer, so that they then hold 10% of total shares. So now total shares Is (between 11bn and 16bn) / 0.9 = between 12.2bn and 17.8bn.
   $5m of Bridge Securities loan will go into a D4E, getting 5% of resulting share capital. So now total shares is (between 12.2bn and 17.8bn) / 0.95 = between 12.8bn and 18.7bn. This means that $5m debt (about £3.25m) has got between 640m and 935m shares. Implied price per share is therefore between 0.78p and 0.53p.

   So which figure to take as expected share price?! Well, prob none of them since market will then evaluate value of actual assets and take into account total debt, how interest is paid etc etc (not to mention minor matters, such as oil price, politics and performance of mgt). But if we were to go for, say, 1p a share (ie par) I don’t suppose we will be so far out. That would give newly restructured Afren a market cap of between £128m and £187m.

   Calculating dilution of existing shares if they take up or refuse open offer is a bit of a nightmare! But low end calculation would be that they started with 1.1bn shares and total ends up (assuming full take-up by bondholders who appear to be allowed to take excess offer shares otherwise allowed to go to existing shareholders) out of a max of 18.7bn = 5.88% – thus in line with RNS.

   Will do debt pile shortly, unless I’m beaten to it!

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   Paul Curtis

   21 June 2015, 03:55

   Will study this more closely this pm but originally total shares would have been between 12.94bn and 13.387bn, the difference being the Rights Issue of 0.379bn.

   ie 11bn or 11.379bn if Rights

   This increases to 12.94bn or 13.387bn (if Rights) after Senior Note Early Bird/PPN Convert,

   So if you are right Shareholders have been given a significant slice of cake

   Previously they had 8.5% or 11% with full Rights

   Now they get nearer 15% if Bondholders don’t take up their share

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   drunken sailor

   21 June 2015, 05:00

   984.5m OO shares plus 1.1 Bn shares already in existence = 15% therefore total number of shares at the end if all OO shares taken up is 14 Bn – 13 Bn if not.

   1.1Bn now + 4.4Bn + 5.5Bn = 11Bn
   upto 1 Bn OO = 12 Bn
   10% + 5% of final 14 Bn = 2.1Bn so totally 14.1Bn with a few rounding errors. hich ever way you do it it comes to 14 Bn so I am confident of my maths. The red herring in there is the raise of UPTO $75M that can’t happen as it would dilute the bondholders who did a D4E at of 3p far too much and they would kick the deal out (bondholders still need to formally accept the deal after shareholders have had their say).

   The question is do people think New Afren will be worth more than £140M? I do not but have never held Afren and have no intention of ever doing so. However surely anyone who does still hold Afren must believe it would be worth more than £140M and therefore should be voting yes and putting as much as they can afford into the OO – the 4 for 9 is their entitlement but that can ask for over entitlement up to the cap.

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   nigel somerville

   21 June 2015, 05:03

   Paul – max is 14.25% (taking into account 5% issue to Bridge Secs D4E right at the end). But that only happens if s/h take max offer shares – ie bung in between c. £5m-£10m – itself dependent on bondholder take-up. Am inclined to think the offer price/structure has been done to encourage as much new cash into AFR as possible. Main beneficiary of that is bondholders, whose debt will be a tad safer.

   If shareholders are not prepared to throw more cash in the pot then their current 100% of equity could fall as low as 5.88% – not such a large slice of any recovery pie.

   But all said and done, debt will still dwarf market cap and cash in the company. Will tot up debt shortly.
   Regards

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   Paul Curtis

   21 June 2015, 07:12

   Thanks Nigel

   IMO Bondholders won’t subscribe since c. £140m valuation looks toppy for option money on oil price facilitating debt repayment. Several years of $100 oil would be transformational. Industry CAPEX cutbacks make this possible.

   I’m a bondholder and would prefer the full £50m raise even if it heavily dilutes my 25% debt for equity swap and therefore makes my actual haircut more obvious. I wonder whether this is all about confusing both Bondholders (who aren’t taking LN’s) and shareholders into believing they are getting a better deal!

   The level of debt is mind boggling and I don’t understand why Afren shareholders struggle to accept that Afren a dead parrot and equity worthless without Bondholder cash injection/haircuts.

   Even after restructuring it’s very high risk.

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    nigel somerville

    21 June 2015, 11:58

    Drunken,

    It may just be my misunderstanding, but I believe D4E (4.4bn shares) and the 5.5bn shares are also in on OO. 4 for 9 on basis of 11bn in issue gives issue of 4.9 bn New shares (max) – in line with RNS figs. Hence approx max following OO is 16bn. Then 10% and further 5% on top gets us (earlier rounding aside) to 18.7bn. There are also a v few extras if part of deal is delayed.

    Min number is 11bn (if no OO take up at all by anyone) then 10% and 5% takes us to about 12.8bn

    Would you agree?