By Tom Winnifrith | Friday 29 April 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Without explicitly using the words "we are 100% fucked and shareholders face either total or near wipeout" drowning in debt Gulf Keystone (GKP) has today pretty much fessed up to what a mess it is in. Not for the first time, the company is telling shareholders that the game is up. Natch they think they know better. They obviously don't remember the last days of Afren.
On 14 April Gulf said it was deferring payments of $26.4 million of interest as it was allowed to do until 2nd and 3rd May. Today the bond holders have agreed to a further extension until 20 May which could be pushed to 31 May. Gulf says the time will allow it an " extended period to continue the Stakeholder Discussions beyond the expiry of the grace periods for the April 2016 Coupon Payments."
But by not paying interest on 2nd and 3rd May Gulf will then formally be in default. And thus if more than 25% of either class of bond holders get together they can call for immediate repayment and Gulf just does not have the cash to meet such a call. Pro tem that looks unlikely but what is clear is that the only way out for Gulf is a massive debt for equity swap and then a further capital injection to fund capex to reverse output declines.
The company may well survive. But shareholders will face either wipeout ot as near as damn it via dilution. If existing punters end up with less than 1% of the equity (which is the best case scenario) a delisting to follow is almost inevitable. Even at 5p the shares are at least 80% overvalued and remain a stand out sell.
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