Gulf Keystone Petroleum (LON:GKP) has revealed its long awaited debt restructuring deal, which will see half a billion dollars of debt converted into equity.
In London GKP shares slumped more than 45% in early deals, falling to as low as 2.36p, to value the existing equity at less than £25mln.
The Kurdistan oil firm’s indebtedness reduces to around US$100mln as a result of the proposals.
Current shareholders will end up with just 5% of the company, as a result of equity dilution, though they will have the chance to participate in a US$25mln open offer (which if fully taken up will leave them with a total of 10% of the company).
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Together with the US$25mln capital raise the company highlighted that some US$32.5mln if cash reserves (previously held under debt covenant) would now be unlocked.
Consequently it now expects to have funds to implement plans to maintain production at 40,000 barrels of oil per day at the Shaikan field.
The transactions require the approval of both shareholders and bondholders.
Gulf Keystone warned that if the proposed restructuring does not proceed the available alternatives are likely to leave zero value for shareholders.
“Following months of negotiation, and in the absence of deliverable alternatives, the board believes the proposed restructuring offers the best possible outcome for all," said Andrew Simon, Gulf Keystone chairman.
Simon acknowledged the “significant value destruction” that has occurred in recent months as a result of low oil prices, geopolitical impacts and the group’s debt problems.
“To address the liquidity and significant leverage situation faced by the Company, we have to restructure the balance sheet now,” he added.
Jón Ferrier, chief executive, said: “Without the restructuring and the improved liquidity delivered by the transaction, the company cannot avoid insolvency or capture the significant future potential of the Shaikan field.
“In my view this is the best possible transaction for existing stakeholders in these very challenging circumstances, and I urge stakeholders to support it.”
He added: “we have the foundations of a strong future equity story for a restructured GKP to develop the Shaikan field and unlock its potential as one of the most significant assets in Kurdistan.
“Without a successful consensual restructuring, Shareholders and Convertible Bondholders have no realistic chance of preserving current value or participating in future value."
-UPDATED to include opening share price details-