The saga at Afren (LSE: AFR) has been twisting and turning like a writer struggling to find a suitable metaphor. The troubled oil explorer is technically insolvent after having defaulted on a number of interest payments, albeit with the support of creditors.
It has a restructuring plan in place which would keep the company afloat, but at a cost of handing around 89% of its equity over to its lenders — and shareholders who have already suffered a 99% loss since the start of 2014 would be left with very little.
Revolt
Then came an attempted revolt by the Afren Shareholder Opposition Group (Asog), who are trying to reject the proposed equity restructuring at the upcoming EGM — the Afren board needs a 75% vote to approve the share dilution, so does Asog have a realistic chance to stymie it?
The company’s response has been to make it clear that the debt restructuring is to go ahead regardless, and that in the event of a rejection of the equity part of the deal (which is the only thing shareholders can now stop), “…shareholders would be unlikely to see any return of their current investment“.
The shares slumped to a low of 1.28p on 22 June, but the markets were surprised by a surge back up to 2.9p the following day, two days ahead of the firm’s AGM (though they’re back to 1.9p as I write). There was much speculation as to the possible reasons for the spike — might Asog members be buying up as many shares as they can in order to block the debt-for-equity swap?
AGM failure
Well, the result of the AGM itself surprised many of us, with “resolutions 12, 13 and 14, regarding the ability of the Company to issue shares and make market purchases of its own shares in the next 12 months” being defeated. Although the three resolutions are not linked to the refinancing plan and merely affect the day-to-day running of the company, it does look like it could be a testing-the-waters protest vote ahead of the EGM.
The Afren board said it will “re-engage with its shareholders” in the wake of the rejections, but CEO Alan Linn stressed once again that “There should be no doubt: this is the only viable option and there is no room for renegotiation“.
As of 20 May, Asog-registered shareholders controlled just over 10% of the company’s shares, according to the group, but based on voter turnout at previous meetings Asog reckoned it would need only around 17.5% to carry the day. And it’s now looking like there’s a real possibility it could achieve that.
Is the worst yet to come?
I still think a rejection of the deal would be a disaster and I really can’t understand how Asog thinks such an outcome would be in any way desirable. But it really looks like it’s going all the way to the wire now, and the tale might have one more twist to come.