Xcite Energy Plc’s (LON:XEL) debt-for-equity restructuring is at risk of failing as it is understood that large numbers of retail investors plan to reject the deal.
The North Sea oil field developer, which is almost entirely owned by retail shareholders, revealed yesterday its negotiations with bondholders would result in 98.5% of the company being handed over to the lenders.
All of the group’s debt, the figure was put by Xcite as US$149mln, will be exchanged for new shares in the proposed restructuring.
Xcite is essentially following the footsteps of Gulf Keystone Petroleum Limited (LON:GKP), which is in the process of delivering a similar arrangement with its lenders.
A key difference, however, is that Gulf Keystone’s deal seemingly left just enough value for shareholders to accept the proposals.
Indeed, it even managed to convince some to put fresh capital in as well.
Saving only 1.5% of the restructured company may not be enough to entice Xcite’s private investors in sufficient numbers.
Dr Dougie Youngson, oil companies analyst at finnCap, reckons it is still up in the air whether or not the restructuring will be supported.
“I don’t think we’ve got any visibility as to what’s going to happen next,” he told Proactive Investors.
“If you look at the various retail investor bulletin boards they’re all adamant they’re going to vote no, which means that the company will go into administration.
“Xcite shareholders feel quite hard done by. They are going to get wiped out regardless of which way they vote.”
Youngson added: “I think they believe that by voting no they’ll have leverage over the bondholders to get a better deal.
“I don’t really see that happening.”
Xcite’s deadline to conclude the debt negotiations was due to run out on Friday.
But the company has requested a further extension as it works to finalise the restructuring proposal.
Once it is completed, existing Xcite shareholders will be asked to vote at an extraordinary general meeting.
In its statement on Tuesday, the AIM-quoted company warned shareholders that the bondholders intended to pursue enforcement action against the company should the proposed debt-for-equity restructuring fail to secure the necessary support from shareholders.
“On the basis of advice received by the company and the directors, the directors believe that such enforcement action is unlikely to result in the return of any value to the company's existing shareholders,” it added.
Xcite also advised that: “The proposed restructuring will provide the company with a significantly stronger balance sheet and the working capital to continue to pursue the development of the Bentley field in order to deliver value for all stakeholders in the future.
“The directors of the company recognise that the proposed restructuring represents a very significant dilution to existing shareholders, however they believe that it is in the best interests of the company.”
It is anticipated that, as part of the restructuring arrangements, Xcite’s new owners will provide a US$10mln working capital facility to support the company financially in the near term.
What’s certain is this drama has more twists and turns than the latest plot-line from the Archers.