Afren creditors plan highly dilutive debt-for-equity swap

After unveiling $2bn of impairment charges for its upcoming 2014 results, Afren has entered into a funding agreement with its lenders that will result in "substantial dilution" for existing shareholders.

The proposal to recapitalise its capital structure includes a debt-for-equity swap with creditors that will leave current stakeholders with just 11% of the share capital.

"However, the company believes that there are significant benefits in shareholders supporting the recapitalisation, as compared to the alternative outcome if shareholders do not vote in favour at the extraordinary general meeting," Afren said.

If shareholders don't approve the plan, the company will have no choice but to sell the business, Afren warned, meaning shareholders would unlikely see any return on their current investment.

In a trading statement, Afren said it plans to take impairments worth $2bn in respect of its 2014 results due to previously-announced write-offs of oil reserves at Barda Rash and the impact of lower oil prices on assets in Nigeria.

The company generated just $0.9bn of revenue last year, down from $1.64bn in 2013, as average production of 31,800 barrels of oil per day (bopd) fell short of guidance.

Looking ahead, Afren has guided to producing 29,000-36,000 bopd of oil in 2015.

The group, which was forced to dismiss a number of senior directors including its chief executive officer last year due to "the unauthorised payments issue", said an announcement will be made shortly about a replacement.