Afren's share price suffered today after it said it will default on $15m (£9.7m) of interest payments due 1 Feb, as the embattled oil producers scrambles to find a resolution to the company's funding crisis.
In light of the company's current liquidity position and in order to preserve cash while the review of the company's capital structure and funding alternatives is completed, the board has decided, at the expiration of the 30 day grace period, not to pay $15m of interest which was due on 1 February 2015 under its 2016 notes.
While such non-payment will result in a default under the 2016 notes, this will not result in an immediate obligation to repay such 2016 notes or any cross-default under its 2019 Notes or 2020 Notes or its other debt facilities.
It also warned shareholders that the impending restructuring will "substantially" dilute interests of shareholders.
[Restructuring] is likely to result in economic terms associated with the new funding and/or the issue of new equity which will substantially dilute the interests of the company's current shareholders.
The company's share price fell as much as 39 per cent to 5.6 pence per share at the open in London today. And overall, shares in Afren have shed around 94 per cent since the same time a year ago.
Afren struggled throughout last year following allegations of boardroom corruption and tumbling global oil prices. But its share were crushed in January when the company revealed a funding crisis, saying it needed $200m cash.
The London-listed oil producer said it's still in discussions with its lenders regarding the $300m Ebok debt facility, as well as other lenders over over its immediate funding needs. It insisted it's also in talks with stakeholders and third party investors over a potential capital injection.
Earlier this week, Afren revealed it had gained a further deferral of the $50m (£33m) amortisation payment, originally due on 31 January, to 31 March.
While the company is also having discussions with its other stakeholders and third party investors regarding interim funding and recapitalising the company, the board believes that an agreement between the company's creditors presents the most likely solution to the immediate issues facing the business.
There have been reports that Afren is in talks with interested parties, after it ended talks with rival producer Seplat saying it failed to make an offer that was "satisfactory to all relevant stakeholders."
Fosun, which recently snapped up Club Med, is said to be interested in buying up the embattled oil producer. It's backed a $500 million cash deal led by the Afren co-founder Bert Cooper, the Sunday Times said. Nonetheless, it's likely the deal will fail, as Afren's lenders have come up with their own rescue plan.