LONDON (Bloomberg) — Gulf Keystone Petroleum Ltd. creditors will take control of the oil producer after low crude prices and erratic export payments left the company unable to service debts.
Bondholders will get an 85.5% stake under a deal that will see more than $500 million of debt converted into equity, according to a statement on Thursday. The company, which drills in Iraq, also plans to raise as much as $25 million from selling new shares, and it named a new chairman.
Crude’s plunge to below $50/bbl and the Kurdistan regional government’s irregular payments for exports in recent years have pushed Gulf Keystone close to collapse. The company has $325 million of convertible bonds due October 2017 and $250 million of senior unsecured notes due April 2017, according to data compiled by Bloomberg.
“Without the restructuring and the improved liquidity delivered by the transaction, the company cannot avoid insolvency,” CEO Jon Ferrier said in the statement.
Share Slump
The London-based company’s largest shareholder, Capital Research & Management Co., has agreed to the deal, along with more than half of bond creditors, according to the statement.
Gulf Keystone’s shares plunged as much as 47% on Thursday to 2.5 pence and were at 3.5 pence as of 9:42 a.m. in London. They were at 15 pence at the start of the year and touched a high of 3.49 pounds in 2012.
It’s “an unfortunate conclusion for long-suffering equity holders,” Werner Riding, an analyst at broker Peel Hunt, said in a note to clients. “Crippling debt service costs were compounded by the low oil price environment and a complicated local and regional geopolitical situation.”
Keith Lough has taken over as non-executive chairman at Gulf Keystone, after being a non-executive director. He succeeds Andrew Simon, who has left the company.
The oil producer will seek approval from other bondholders to reduce total debt to $100 million from more than $600 million through UK courts, in a process known as a scheme of arrangement, according to the statement.
Under the plan, unsecured noteholders will get 65.5% of the company and retain $100 million of bonds, while convertible noteholders will own 20%. Existing shareholders will be diluted to a 5% stake and get the chance to purchase about 10% more through the capital increase, the company said. Any stock not bought by shareholders will be purchased by Capital Research, up to a limit of $20 million.
Houlihan Lokey Inc. advised a group of creditors in the negotiations, including GLG Partners, Sothic Capital Management and Taconic Capital Advisors, people familiar with the matter said in February.
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