Afren Plc Shares Suspended: Is This The End For Shareholders?

Roland Head explains why Afren Plc (LON:AFR) shares have been suspended and what this means for 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.

In a shock move, shares in Afren (LSE: AFR) were suspended this morning after the firm said that it was “unable to assess accurately its financial position”.

In this morning’s update, Afren said that “an ongoing review of the business plan” had revealed that “near-term oil production is likely to be materially lower” than the assumptions included in March’s restructuring plan.

It does seem pretty shocking that this has only come to light after the restructuring plan was agreed. I imagine the reason for this is that the firm’s new management, led by chief executive Alan Linn, is still working its way through the figures and projections provided by the previous management.

However, bondholders who have supported the restructuring are likely to be pretty unhappy at this development.

Less than two months ago, on 29 May, Afren said Q1 production of 36,035 bopd was “above” full-year guidance and “in line with expectations”. What’s gone wrong since then?

Afren doesn’t give any details of the likely shortfall in production, but the firm’s comments suggest to me that the financial projections on which the restructuring plan was based may now be invalid.

Out of cash

Afren says that it will be “further engaging” with the ad-hoc committee of bondholders regarding its request for an additional $30m of bridging loans. The firm also says that it will be engaging with stakeholders to discuss the implications of today’s news on the proposed restructuring.

This suggests to me that the firm may not have enough cash to continue operating between now and 5 August, when new Senior Notes are expected to be issued to provide the firm with fresh longer-term funding.

Today’s statement also suggests to me that there may be a risk that the funds provided for by the restructuring plan will no longer be enough to meet Afren’s needs and prevent it from falling into administration.

A new restructuring plan may now be required.

The end of the line?

The outlook for shareholders was already uncertain at best.

Afren shares have fallen by 96% since the start of the year and the future of the company has clearly been in doubt.

Today’s news makes this picture much, much worse.

Even if shareholders vote to approve the restructuring plan at the EGM on 24 July 2015, this may not be enough. Further refinancing could be required, and bondholders may decide to throw in the towel and force Afren to sell its assets.

The Afren shareholder group (ASOG) that has been opposing the restructuring plan also now finds itself in an uncertain position. If the restructuring needs to be renegotiated, the consequences of a ‘no’ vote are likely to change. It’s possible that the planned EGM may be delayed until a different set of proposals are agreed.

Even if trading is resumed, Afren’s share price is likely to fall sharply. There is a real risk that Afren shares will remain suspended and eventually be delisted, making it impossible for shareholders to sell.

My view is that Afren shares are now likely to be worth nothing and should be sold if possible. For now, there is nothing that shareholders can do except wait.

However, today’s news highlights the need for investors to ensure their portfolios are properly diversified.

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.

Roland Head 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

A front-view shot of a multi-ethnic family with two children walking down a city street on a cold December night.
Investing Articles

Want to make your grandchildren rich? Consider buying these UK stocks

Four Fool UK writers share the stocks that they believe have a lot of runway to grow over the long…

Read more »

Investing Articles

1 penny stock with the potential to change the way the world works forever!

Sumayya Mansoor breaks down this potentially exciting penny stock and explains how it could impact food consumption.

Read more »

Investing Articles

2 FTSE 250 stocks to consider buying for powerful passive income

Our writer explains why investors should be looking at these two FTSE 250 picks for juicy dividends and growth.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Growth Shares

This forgotten FTSE 100 stock is up 25% in a year

Jon Smith outlines one FTSE 100 stock that doubled in value back in 2020 but that has since fallen out…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

2 dividend shares I wouldn’t touch with a bargepole in today’s stock market

The stock market is full of fantastic dividend shares that can deliver rising passive income over time. But I don't…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

Use £20K to earn a £2K annual second income within 2 years? Here’s how!

Christopher Ruane outlines how he'd target a second income of several thousand pounds annually by investing in a Stocks and…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Here’s what a FTSE 100 exit could mean for the Shell share price

As the oil major suggests quitting London for New York, Charlie Carman considers what impact such a move could have…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

Shell hints at UK exit: will the BP share price take a hit?

I’m checking the pulse of the BP share price after UK markets reeled recently at the mere thought of FTSE…

Read more »