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LONDON (Alliance News) - Gulf Keystone Petroleum Ltd shares plummeted on Thursday after it said it has signed an agreement with the majority of its bond and loan note holders to address its hefty debt pile which will result in significant dilution to existing shareholders.
Gulf Keystone shares were down 28% to 3.35 pence per share on Thursday morning.
The Iraqi oil producer also unveiled a new Non-Executive Chairman, Keith Lough, as Andrew Simon has retired from the board with immediate effect.
Gulf Keystone has been in talks with the holders of its bonds throughout this year to try to delay coupon payments whilst it tries to raise funds and a standstill agreement had been signed in April with the Ad Hoc Committee, which is comprised of a portion of the holders of the company's loan notes and bonds.
Gulf Keystone delayed over USD26.0 million of coupon payments that had been due on April 18 using a grace period before signing a formal extension with the committee that gave it until the end of May to make the payment before extending it twice more to July 1.
However, the committee refused to extend the standstill agreement again, meaning the coupon payments were now due, but Gulf Keystone continued talks with "certain restricted members" of the committee of bondholders and other stakeholders about a potential restructuring.
On Thursday, Gulf Keystone said it has reached an agreement with the bond holders that hold two-thirds of the guaranteed loan notes and 50% of the convertible bonds, as well as the company's two largest shareholders, Capital Research and Management Co, as investment advisor to New World Fund Inc and SMALLCAP World Fund Inc.
The notes and bonds in question mature in April 2017 and October 2017, respectivley, and lower oil prices simply means Gulf Keystone does not have the ability to settle its debt and the business has looked at numerous options.
"The end result of this process is that the board has concluded that the only prospect for the company to continue trading and avoid a liquidation is to effect a substantial restructuring of the company's balance sheet and that the restructuring is in the best interest of the company and its stakeholders," said the company.
The new capital structure will reduce debt to around USD100.0 million from the current pile that stands over USD600.0 million. That will be achieved by converting USD500.0 million of existing debt into equity through a UK scheme of arrangement with note and bond holders.
The open offer will raise USD20.0 to USD25.0 million and the company believes that will significantly improve the liquidity of the group when combined with the reduction in financing costs and the removal of the USD32.5 million sitting in a reserve account as a covenant.
That will let Gulf Keystone pursue its investment plan to prevent natural declines in production. The company plans to maintain production at 40,000 barrels per day and is hoping that it can eventually push that up to 55,000 barrels per day, it said.
Excluding the open offer, the huge debt reduction will lead to Gulf Keystone's existing shareholders only owning 5.0% of the company, but the open offer will make shares available to those shareholders that will be equal to a 10% stake in Gulf Keystone post-capital restructuring.
If existing shareholders do not take up the USD25.0 million worth of shares to be made available, the company said one of its largest shareholders will purchase up to USD20.0 million of those shares.
If the open offer is fully subscribed, however, then existing shareholders will own 14.5% of the company whilst the conversion of debt into equity will mean loan note holders will have a 65.5% stake whilst bond holders will own the other 20%.
In a separate release Thursday, the company said Chief Executive Andrew Simon has retired from the board with immediate effect and replaced by Keith Lough - who stressed the proposed restructuring was "the only credible option" for the business.
Lough was a non-executive director prior to being appointed as non-executive chairman.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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