Afren Plc Shares Suspended: Is This The End For Shareholders?

Roland Head explains why Afren Plc (LON:AFR) shares have been suspended and what this means for shareholders.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In a shock move, shares in Afren (LSE: AFR) were suspended this morning after the firm said that it was “unable to assess accurately its financial position”.

In this morning’s update, Afren said that “an ongoing review of the business plan” had revealed that “near-term oil production is likely to be materially lower” than the assumptions included in March’s restructuring plan.

It does seem pretty shocking that this has only come to light after the restructuring plan was agreed. I imagine the reason for this is that the firm’s new management, led by chief executive Alan Linn, is still working its way through the figures and projections provided by the previous management.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

However, bondholders who have supported the restructuring are likely to be pretty unhappy at this development.

Less than two months ago, on 29 May, Afren said Q1 production of 36,035 bopd was “above” full-year guidance and “in line with expectations”. What’s gone wrong since then?

Afren doesn’t give any details of the likely shortfall in production, but the firm’s comments suggest to me that the financial projections on which the restructuring plan was based may now be invalid.

Out of cash

Afren says that it will be “further engaging” with the ad-hoc committee of bondholders regarding its request for an additional $30m of bridging loans. The firm also says that it will be engaging with stakeholders to discuss the implications of today’s news on the proposed restructuring.

This suggests to me that the firm may not have enough cash to continue operating between now and 5 August, when new Senior Notes are expected to be issued to provide the firm with fresh longer-term funding.

Today’s statement also suggests to me that there may be a risk that the funds provided for by the restructuring plan will no longer be enough to meet Afren’s needs and prevent it from falling into administration.

A new restructuring plan may now be required.

The end of the line?

The outlook for shareholders was already uncertain at best.

Afren shares have fallen by 96% since the start of the year and the future of the company has clearly been in doubt.

Today’s news makes this picture much, much worse.

Even if shareholders vote to approve the restructuring plan at the EGM on 24 July 2015, this may not be enough. Further refinancing could be required, and bondholders may decide to throw in the towel and force Afren to sell its assets.

The Afren shareholder group (ASOG) that has been opposing the restructuring plan also now finds itself in an uncertain position. If the restructuring needs to be renegotiated, the consequences of a ‘no’ vote are likely to change. It’s possible that the planned EGM may be delayed until a different set of proposals are agreed.

Even if trading is resumed, Afren’s share price is likely to fall sharply. There is a real risk that Afren shares will remain suspended and eventually be delisted, making it impossible for shareholders to sell.

My view is that Afren shares are now likely to be worth nothing and should be sold if possible. For now, there is nothing that shareholders can do except wait.

However, today’s news highlights the need for investors to ensure their portfolios are properly diversified.

This AI stock is becoming a digital juggernaut in a £ 12.5 billion market!

🤖 Curious about the next big player in AI? 🤖

Our leading industry analysts have uncovered a trailblazing content platform that's revolutionising the industry with its unparalleled generative AI technology, setting new standards in creativity and efficiency.

Care for a sneak peek?

Trusted by global giants like Amazon, Disney, and Netflix, this innovative company is not just transforming digital media with AI-generated 3D content but is also capturing a significant share of a £12.7 billion market!

With a remarkable 62% gross margin, indicating exceptional profitability and operational efficiency, this company's growth trajectory positions it as a must-watch for savvy investors.

Best of all, we're offering exclusive access to the name of this game-changing stock, absolutely free!

Discover your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »