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.

sdf

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

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Analysts reckon the Vodafone share price is still undervalued!

Our writer’s been looking at the latest Vodafone share price forecasts and assesses how the group’s performed against the targets…

Read more »

Investing Articles

Considering a Stocks & Shares ISA in 2025? Make sure to avoid these pitfalls

Mark Hartley outlines a few basic tips for investors to ensure opening a first-time Stock and Shares ISA goes as…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

What will take the Lloyds share price beyond 80p?

The Lloyds share price has leapt by 40% in the last six months. It's also soared by 135% in five…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

Want to become an ISA millionaire? Here’s one way to target stock market riches with £500 a month

Making a million pounds or more in an ISA doesn't have to be a pipe dream. Here's how a mix…

Read more »

Light bulb with growing tree.
Investing Articles

Could the ITM Power share price be set to soar like Rolls-Royce?

The Rolls-Royce share price has risen 10-fold since 2022. Could this under-the-radar UK growth stock deliver similar returns in the…

Read more »

Close-up of British bank notes
Investing Articles

Turn £20k into a £1k second income this summer? Here’s how!

With £20k, our writer thinks a portfolio of blue-chip shares could help an investor earn a four-figure second income each…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

Can this UK stock really deliver a high 19% dividend yield?

Stocks with high dividend yields can play a big part in an investor's quest for passive income. Let's look behind…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing Articles

No savings at 30? Here’s how a Stocks & Shares ISA could help turn £1,000 per month into £1,000,000

A 6.5% average annual return is enough to turn £1,000 per month into £1m over 30 years. And a Stocks…

Read more »