By Tom Winnifrith, The Sheriff of AIM | Friday 15 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.
I am beginning to think that my 1p target price for Gulf Keystone (GKP) is in fact far too generous. Having called this as a sell at 180p and all the way down to abuse from every moron in the land I think it is time to revise the target price. The shares are off another 9% today to just 4.675p. Okay I shall stop being a nice guy, I am cutting my target price from 1p to 0p.
I had thought shareholders might be left with a little something post a debt for equity swap. But I am struck by this piece on Zero Hedge:
Elsewhere, Gulf Keystone Petroleum Ltd. also took its first step to a Chapter 11 filing when it announced it would delay about $26 million of bond payments due next week as low oil prices and disruptions in Iraq press its finances.As Bloomberg reports, the company intends to use grace periods for payments on convertible bonds and guaranteed notes due on April 18, it said in a statement on Thursday. Shares of the London-based oil explorer tumbled as much as 36 percent to record-low 4.5 pence.
Gulf Keystone, which operates in the Kurdish region of northern Iraq, also intends to hold talks about fundraising and debt obligations after oil prices plunged about 60 percent in two years. Financial difficulties have been compounded by previously erratic export payments from the Kurdistan Regional Government.
“We are working to achieve the best possible way to restructure our balance sheet,” Gulf Keystone’s Chief Executive Officer Jon Ferrier said in the statement. “Addressing our funding needs will ensure the company’s longer-term future.”
Payments on $325 million of October 2017 convertible notes can be delayed until May 2, without risk of default. Those on $250 million of guaranteed notes due April 2017 can be postponed until May 3. The convertible notes are quoted at 13 cents on the dollar, while the guaranteed notes are at 49 cents, according to data compiled by Bloomberg.
Bondholders including GLG Partners, Sothic Capital Management and Taconic Capital Advisors have hired Houlihan Lokey Inc. to advise them on the potential debt restructuring, people familiar with the matter said in February. It is unlikely that these coupon payments will be paid meaning that the ad hoc creditor committee will likewise end up owning the company, which when delivered, will continue pumping even more oil now that its overall cost of capital slides as it has no more debt payments to worry about.
May 2 is a bank holiday so I suggest that the last day when Gulf shares could be traded is potentially as soon as 29 April. Two thinks should strike you.
1. If bonds are now quoted at 13 cents in the dollar that tells you the equity is totally worthless.
2. Zero Hedge's analysis that the interest payments will be skipped so allowing the bondholders to take complete control of the company looks very plausible. The KRG can keep dealing with the body corporate it is just that the equity is wiped out.
On that basis I am prepared to admit that my previous 1p target price was way too generous. I am sometimes too much of a nice guy for my own good and for that I apologise. The new target price is 0p. The stance remains sell.
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