Afren shareholders wait with baited breath for bid news

After peaking last week at 35p, shares in Nigeria focused Afren have had a tough time over the last few days, currently trading at 21p. Reports by Sky news later confirmed by an RNS at 6.30pm on Monday that it was working with Morgan Stanley on a  possible financial restructuring, a review of its capital structure, liquidity and funding requirements all hit sentiment. Afren also announced that as part of that process the company is in discussions with its lenders regarding amendments to its existing facilities, in addition to seeking a deferral of a $50 million amortisation payment due at the end of this month.

Seplat is still in talks with Afren with a bid or walk away deadline of Monday 30th January. The announcement of the $50 million deferral talks is surprising given the apparently decent cash position of the company and it is unwelcome after the resources downgrade for its Kurdistan assets a couple of weeks ago send the shares sharply lower.

Like many other oil producers Afren is weighed down by debt and lower than hoped revenues in the face of a sub $50 oil price. The combination with Seplat makes sense for both companies. It will give Afren access to Seplat’s funding and draw a line in the sand following the management payment scandal. For Seplat it gives them a company with 30,000 plus of production with plenty of scope for upside if money is made available for capex and additional exploration on their licences.

It seems a good strategy that Afren’s management are reviewing the company’s financial position with a view to potential cost savings and getting the banks on side just in case Seplat decide to walk away. The market is saying that at the current low level if a bid comes it will at a small premium which will be very disappointing for longer term shareholders but the combined company should do well in the long run and let’s hope that common sense prevails in the negotiations and Seplat don’t take the mickey too much after all the disappointing news from Afren of late. With the price of Afren so low at the moment, Seplat seemingly have a bargain on their hands. The run up to January 30th will be interesting after plenty of red ink in Afren’s share price this week so far –  a traders paradise right now.

Contrarian Investor UK

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