Bondholders of troubled gas producer IOG (AIM:IOG) have granted the company more time to address challenges with its balance sheet.
The operator of the Saturn Banks project in the southern North Sea said this week it was in “advanced” discussions with bondholders and advisers over a further deal to waive interest payments.
It follows warnings this week that a failure to meet its interest obligations could lead to the company being placed in administration.
In a market announcement on Thursday IOG confirmed those discussions had been productive, with bondholders controlling 70% of the voting bonds agreeing to its proposed waiver agreement, which was formally approved.
The group has undergone months of strife involving drilling challenges and production issues which, coupled with a fall in global gas prices, have hit its balance sheet hard.
In June the company said it was likely to breach of one or more covenants of on the 100m euro bond and would seek an initial one-month waiver – now extended to September.
In response it cancelled a drilling contract, deferring plans for appraisal wells at its Kelham and Goddard prospects, both part of the wider Saturn Banks hub in the UK North Sea.
On Thursday chief executive Rupert Newall said: “We appreciate the bondholders’ approval of this waiver, which applies to the end of September.
“This will enable us to continue our dedicated efforts to address the challenges facing the business and deliver an outcome in the best interests of all stakeholders. We will keep the market updated on further progress in subsequent announcements at the appropriate times.”
In an analyst note, Panmure Gordon director Ashley Kelty said the waiver would offer the firm’s management “a brief respite” in the form of a few more weeks to work on solutions to get out of the “very deep hole that they are in.”
“This will not come from revenues, with gas prices low and (already poor) production set to drop in August due to planned maintenance,” he added.
Mr Kelty noted that interest continues to accrue at over 13%, and that IOG’s update did not mention the fees demanded by bondholders to grant the waiver.
“Bondholders patience is not likely to last very long given the low quality of the assets and awful operational track record of management.
“A debt for equity swap may be the only viable solution aside from bondholders taking over and clearing house. Either way, existing equity holders must be feeling very nervous that their capital could be wiped out entirely.”