Bid talk and debt delay excite Afren

Originally scheduled for 31 January and already delayed by one month, Afren has managed to push back a $50 million payment due on the $300 million Ebok debt facility until the end of March. There was also speculation in the weekend press that new bidders are circling. Afren's share price jumped as much as 40% to 12p on the double dose of news, although gains are proving difficult to hold onto.

In addition to deferring the Ebok payment, Afren is reviewing its capital structure and funding alternatives before paying $15 million interest on its 2016 bonds which was due at the beginning of February. Although bosses are working within the 30-day grace period, time is clearly running out, and it must pay $65 million before the end of March.

VSA Capital isn't convinced: "While Afren's cash balance was at $235 million on 31 December 2014, we do not believe this is enough to support its total capex requirement and repay its debt at the same time. AFR has previously warned of a possible equity funding in excess of its current market cap, implying c50% dilution, hence we remain very negative on AFR's outlook."

Discussions with the company's largest bond holders continue over its immediate liquidity and funding needs, and Afren is thinking about recapitalising the company by changing the mixture of its equity and debt to make it more stable.

M&A is also exciting some investors. Chinese conglomerate Fosun has backed a $500 million (£325 million) cash takeover of Afren, but could be outbid by the exploration and production company's lenders, according to The Sunday Times. Afren is saying nothing. 

“I am hearing of a number of bids including one from founder Bert Cooper backed by a Chinese consortium, at least two African bidders and of course the bondholders will have a significant interest in the situation,” says oil industry specialist Malcolm Graham-Wood.

“Time is not on the bidders sides especially given that due diligence will need to be done, the upside doesn’t look substantial although the stock is up 20% today at 10.4p.”

Last month, Afren decided to terminate takeover discussions with Nigerian oil company Seplat, a prospect that had been supporting the group. But this isn't necessarily the end of the takeover road.

"Although the Seplat bid did not go forward, we believe the company still holds attractive assets such as the large Nigerian Ebok field and we think there is still a chance to convince other potential bidders, particularly other domestic producers," says VSA.

Shareholders would bite the hand off any potential suitor willing to pay the kind of money being rumoured. Afren has lost over three-quarters of its value in 2015 and is down 94% since this time last year. Its downfall was triggered by the suspension of members of its management team for illegal payments in July 2014 - which later led to the firing of its CEO and COO. It also had to downgrade its forecasts for how much oil it expects to pump from its Barda Rash oil project in the Kurdistan region of Iraq and has suffered from the collapse in oil prices.

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