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Posted on Wednesday, 06 July 2016 08:48

Tullow shares nosedive in convertible bonds move

By Karolin Schaps

File photo©Reuters/Edgar SuAfrica-focused oil explorer Tullow Oil has issued convertible bonds worth $300 million, a move it said was designed to diversify its investor base, sending its shares to the lowest in nearly three months.

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 on Wednesday.

The fact that the company needs $300 million after the recent reassessment of its borrowing facilities is a bit of a surprise to us

"The proposed convertible bond issue will further diversify Tullow Oil's sources of funding and give the company access to a new investor base," said Chief Financial Officer Ian Springett. Tullow shares were down 12 percent at 211.5 pence early Wednesday morning, the lowest since April 18.

An initial negative share price reaction had been expected due to bond investors typically hedging their purchases by taking a short position on the share price, a source close to the company said.

Tullow 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.

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 fact that the company needs $300 million after the recent reassessment of its borrowing facilities is a bit of a surprise to us," said analysts at Stifel, who recommend selling Tullow shares.

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'. 



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