18th Feb 2016 10:34
LONDON (Alliance News) - Madagascar Oil Ltd shares plummeted on Thursday after it said it is still scrambling for funds as it advances toward possible insolvency, and said its existing lenders are only willing to lend the company further funds if it delists from AIM.
Madagascar shares were down 60% to 1.40 pence per share on Thursday morning.
The company has previously stated it "urgently needed" to source funding in early 2016 after its existing lenders refused to issue Madagascar with a second tranche of short term funding, but Madagascar is still scrambling to find some cash.
Its existing lenders provided a tranche of funds under a bridge facility signed back in September amounting to USD8.9 million and were set to provide a second tranche of up to USD8.0 million at the start of February, but have now refused as they seem unimpressed by the company's progress.
The lenders had sole discretion over whether the second tranche of funds would be issued.
"Following discussions during January and early February 2016, the lenders advised the company that they were not prepared to provide the full amount available under the second tranche of the bridge facility, but some of them indicated that they may provide some further funding, subject to additional conditions," said Madagascar.
The overall outstanding amount of the bridge facility, including rolled-up interest, stands at USD14.4 million and Madagascar reported a cash balance at the end of 2015 of only USD2.8 million.
Without further funding, Madagascar looks set to potentially go bust before the end of the first half as it said it has USD1.5 million worth of trade and other payables due before the end of March - meaning it will enter the second quarter with a balance of only USD1.3 million.
"The company has not been successful in identifying any alternative form of short term financing and so has continued negotiations with certain of its major shareholders, who also constitute lenders representing at least 66% by loan value of the outstanding loan, with regard to their conditions for the provision of further funding, which is required for the company to continue to operate as a going concern," said the company.
"The terms of any further financing, which may be in the form of equity or further debt, are still being discussed with the Relevant Lenders, but one major condition being imposed by them in the discussions is that the company agrees to call a special general meeting to propose the delisting of the company from AIM, which is discussed further below," it added.
Madagascar said without funding it would be "probable" that the company would become insolvent.
Madagascar has not called that meeting as of yet, but said shareholders should expect it to be called shortly.
That meeting is likely to lead to the proposal to delist from AIM being approved. Over 75% of shareholders would need to vote in favour of the proposal, but the lenders backing the proposal hold a combined 60.5% stake in the company, meaning they would need only a fraction of support from other shareholders to get the company off AIM.
Almost 84% of the company's issued share capital is not in public hands with a total of 652.1 million shares in issue. BMK Resources Ltd, formerly Benchmark Advantage Fund Ltd, is the company's largest shareholder with a 31.72% stake. Those shareholdings are according to Madagascar's website.
Other major shareholders include Outrider Management LLC with a 28.8% stake, SEP African Ventures Ltd, formerly known as Persistence Capital LLC, with a 23.46% stake and the John Paul Deroja Family Trust with a 6.5% stake.
There was further bad news from the company as Madagascar has shown little progress from its "Partner Process" plan launched last summer. The plan involves its advisers assisting the company with finding partners for its assets, but after more than six months the company has still failed to find one.
"There remain a number of discussions ongoing, but it will take time to confirm whether any of these discussions can be converted into an executable deal and there is no guarantee that any of them will be consummated within any predictable timeframe, if at all," said the company.
The failure to find a partner is one of the reasons why its lenders refused to issue the much-needed second tranche of funding, clearly unimpressed by the progress being made. The company said four interested parties remain in contact but said no formal offer has been made.
Despite the dire situation at the company, and the possibility of its demise, Madagascar tried to cushion the blow to shareholders by providing updates on its operations - however, they are also facing headwinds and delays that are contributing to Madagascar's predicament.
Importantly, Madagascar said it has 150,000 barrels of crude extracted from its Tsimiroro block hidden away in storage tanks. Those barrels, which would be worth well over USD5.0 million based on current Brent prices, are allowed to be sold into the domestic market but Madagascar still hasn't managed to secure a sales agreement for the product.
The company said it is still in "advanced negotiations" with Symbion Power about a sales agreement for the oil to feed the Mandroseza power station. No sales have been made to date and Madagascar said any revenue derived from those barrels will be used to repay the outstanding bridge facility.
That delay in selling crude is causing even more problems for Madagascar Oil than just delaying much needed income. Storage at Tsimiroro is brimming and forced the company to "scale back operations" in September because it simply couldn't store any more.
"The scale down is being implemented according to plan, including shut down of steam injection and managed reduction of production to an average daily-rate of 100 to 150 barrels of oil per day," said the troubled company.
Madagascar has applied for extensions for the two blocks at the project and said it "remains hopeful" of securing them in the near future.
Madagascar said it has also secured an environmental permit that will allow the enforcement of the production sharing contract signed with OMNIS, as it is the starting point of the implementation of the Tsimiroro block 3104 development plan.
"The granting of this environmental permit is a significant milestone for the country and for the company, as it is the first ever permit for the petroleum exploitation industry in Madagascar," said Chief Executive Robert Estill.
By Joshua Warner; [email protected]; @JoshAlliance
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