Is There A Better Deal Possible For Afren Plc Shareholders?

Is there any rescue alternative for Afren Plc (LON: AFR) shareholders?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re an Afren (LSE: AFR) shareholder, you’re perhaps not at your happiest right now, and that would be entirely understandable.

The oil price collapse hurt many explorers, but those reliant on debt funding felt it the most. Africa-based Afren was shouldering almost $1.2bn in net debt at the end of its first quarter in March, and that’s a lot for a company with a market capitalisation of under £30m.

Default

Afren has also been technically defaulting on interest payments, with the latest announced on 10 June, although that has been with the tacit agreement of the firm’s lenders who are in the process of implementing a financial recovery package — the company would have been bust by now had lenders not been amenable to such a thing.

In many cases a successful recapitalisation package would have a company’s owners whooping for joy. But the Afren plan is likely to leave current shareholders with an almost total loss of their company — at 2.5p per share today, they’re already facing a 98.5% loss since early 2014. If the intended recapitalisation is completed by the end of July as planned, shareholders would be squeezed out further with new financiers taking up to 89% of the equity.

A better way?

Is there any alternative? The Afren Shareholder Opposition Group (Asog) seems to think so, and is trying to put a stop to the bailout package at the company’s upcoming EGM by campaigning for a No vote against the proposed dilution of equity. Afren would need to achieve a 75% Yes vote to go ahead with the dilution, and Asog says its membership already extends to 10% of the firm’s ownership.

But should Asog swing the vote, would a rejection of the proposed terms really be in their best interest?

In March, when the Afren board published the preliminary details of the scheme, we were warned that “If shareholders do not approve the recapitalisation, it is expected that the amended economic terms of the new senior notes, and the amendment and reinstatement of the existing notes, together with the requirement to initiate a sale of the group’s business, will mean that existing shareholders would be unlikely to see any return on their current investment“.

Fire sale

Kicking out the deal that’s on the table would almost certainly end up with a sale of Afren’s assets, and the question is whether there would be anything left for shareholders after debts had been paid off. The below-par value of Afren’s bonds on the open market suggests a sale might not even raise enough to cover debts — and we’re certainly not in a sellers’ market now for oil assets, with the stuff only fetching around $65 a barrel.

I really want Afren’s shareholders to get as good a result as they can, but I fear the 11% of their company they’d be left with under the current plan is probably the best they can realistically hope for — but I do hope I’m wrong, and I wish them the best.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »