Afren hots up as Seplat refinances debt facilities

Nigeria focused Afren is having a hot couple of days after details of a refinancing emerged from Seplat yesterday afternoon. On January 12th Afren’s shares fell over 20% as it announced a substantial downgrade in its Kurdistan resources at its Barda Rash field. With the sharp fall in the oil price early in the week, Afren’s shares fell as low as 21p. Yesterday they rallied over 30% to 29p as Seplat, the Nigeria and London Stock Exchange oil explorer announced that ‘it has successfully refinanced its existing debt facilities with a new US$700 million seven year secured term facility and US$300 million three year secured revolving credit facility.  The seven year facility also includes an option for the Company to upsize the facility by up to an additional US$700 million for qualifying acquisition opportunities.’

The release of the news from Seplat immediately caused a bounce in Afren’s shares with the reference to the  “upsize the facility by up to an additional US$700 million for qualifying acquisition opportunities” implying that it was putting in place financial firepower to table a formal bid for Afren by the January 19th deadline.

Afren’s shares are up another 17% to 33.5p right now after moving as low as 27p just after the open and as high as 35p in recent trading. With $1.1 billion of debt and the disappointing news from Kurdistan talk of a bid at a huge premium i.e. 80p-100p seems premature. A deal if it is consummated will likely have a high element of paper attached to it given the market cap of Afren which currently stands at £435 million or $661 million means that a $1 billion bid with debt attached would exceed the company’s financing capabilities. The question is how many Seplat shares will be offered. It is currently trading at 120p with a £670 million market cap.

A great trade for those picking up at the low’s yesterday after the Seplat news. Will an RNS emerge today or will shareholders have to wait until the deadline on Monday? It seems likely that Seplat will request an extension for the takeover deadline given the initial announcement of interest indicated that discussions were at a preliminary stage. After all the controversy at Afren and sharp share falls over the last year if it is taken out it won’t be missed by many shareholders on the FTSE 250.

Contrarian Investor UK

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