Afren shareholders will lose nearly 90 per cent of the West African oil producer after a rescue rights issue.
The Nigerian-focused company announced a $300 million (£200 million) deal with its bondholders yesterday that will provide it with vital funding by June. However, the refinancing will leave shareholders with only 11 per cent of the company.
As recently as last summer, Afren was worth nearly £2 billion; yesterday the shares collapsed by more than 28 per cent to close at 4¾p, valuing it at about £51 million.
Afren, which has net debt of $1.7 billion, said yesterday that it expected $2 billion of impairment charges on its reserves. It said that it had narrowly missed its production target for last year.
Osman Shahenshah and Shahid Ullah, the chief executive and chief operating officer, respectively, stepped down in October after an investigation found that they had received payments from an operating partner, alongside two other directors and eleven senior staff. The pair agreed to repay $17 million but denied any wrongdoing. Soon afterwards Afren was battered by the collapse in the oil price. In January its shares were rocked by writing off a reserve in the Kurdish region of Iraq.
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Malcolm Graham-Wood, of Hydrocarbon Capital, said: “The recapitalisation is nauseating to shareholders and, as predicted, the bondholders have got the management in the palm of their hands, inflicting pain by the slightest of squeezes. The board will have presided over one of the biggest recent destructions of shareholder value, managed in the shortest periods of time.”
Canaccord Genuity analysts wrote: “We see this complex transaction as the only solution for Afren and, unsurprisingly, equity shareholders are the losers, but it could be worse.”
Toby Hayward, the interim chief executive, said that 2014 had been a “painful” year for Afren.