Shares in Tullow Oil slumped over 12% yesterday after it revealed plans to raise $300million (£232million) in fresh bond debt.
The Africa-focused oil explorer said it would use the money raised to pay for investments in west and east Africa, where it is developing new oil fields, and general corporate purposes.
Ian Springett, the FTSE250-listed firm’s chief financial officer said the bond issue would also “further diversify Tullow Oil’s sources of funding and give the company access to a new investor base”.
It is thought the firm expected an initial negative share price reaction due to bond investors typically hedging their purchases by taking a short position on the share price, a source close to the company said.
But analysts at Stifel, who recommend selling Tullow shares, were unimpressed.
The firm said: “The fact that the company needs $300million after the recent reassessment of its borrowing facilities is a bit of a surprise to us.
Other analysts judged the bond issuance more positively.
“The dilution should be limited and this is a useful diversification of funding for Tullow,” said analysts at RBC Capital Markets who rate Tullow’s stock as ‘outperform’.
Mr Springett added: “We are very pleased with the result of this bond offer which reflects the confidence that the market has shown in the group’s business and financing strategy. The high level of demand has enabled us to strengthen our balance sheet and diversify our sources of capital.”
In April, the oil producer announced its lenders had agreed to extend a revolving loan facility by a year and to increase flexibility on another, helping Tullow keep its finances in order amid weak crude prices.
The bonds, due in 2021 and offered at a conversion price set at a 30-35 percent premium to the average Tullow share price on July 6, will be offered to institutional investors at a coupon between 5.875-6.625 percent, Tullow said.
Recommended for you
