Petroleum Africa
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Monday, March 7, 2016
The Board of Petroceltic International has considered the announcement made on 26 February 2016 by Sunny Hill, a company wholly owned by the Worldview Economic Recovery Fund, of its firm intention to make an all cash offer for the entire issued and to be issued share capital of Petroceltic other than the Petroceltic Shares in the beneficial control of Worldview International Management Limited SEZC and/or any of the Worldview Funds at a price of 3 pence in cash for each Petroceltic Share.
Strategic Review Update
As announced on 23 December 2015, Petroceltic has initiated a formal strategic review of the Company’s business and assets with a view to considering all options to maximise value for shareholders and stakeholders. As part of the Strategic Review, the Board, together with its advisers, have engaged with interested parties on a number of potential transactions including, inter alia, a farm-out or sale of one or more of the Company’s existing assets, a corporate transaction such as a merger with a third party or the sale of the entire issued, and to be issued, share capital of the Company and the raising of capital in the form of debt and/or a subscription for new ordinary shares in the Company by one or more third parties.
While the Board continues to progress discussions with a number of parties, on both asset sales and potential corporate transactions, there is no certainty that the Strategic Review process will result in any other offer for the issued, and to be issued, share capital of the Company, an agreement for the sale of all or part of the Company’s assets, or another form of corporate transaction, or as to the terms of such offer or agreement, should any be forthcoming.
The Company has continued to have a constructive dialogue with its lending group, who have supported the Strategic Review process through their provision of short term financing and ongoing waivers from the requirement for the Company to make repayments under its Senior Bank Facility. Most recently, on 22 February 2016, the Company announced it had received a further waiver of repayments under its Senior Bank Facility until 4 March 2016.
The Lenders have indicated their willingness to consider further waivers as may be required to continue the Strategic Review process based on circumstances applying at the time of any application. However, there is no certainty that the Lenders will grant any such further waivers. Should the Company be unable to secure further waivers from its Lenders, it may lead to the withdrawal of the financial support of the Lenders and the requirement for the Company to make full repayment of its Senior Bank Facility, which the Company is not currently in a position to satisfy. Amounts currently outstanding under the Senior Bank Facility stand at approx. US$230 million and the Group has cash balances of US$33.4 million of which US$26.4 million is held in local currencies and not readily convertible.
The Lenders have also provided conditional financial support to the Company in the form of a limited advance of new funds and through allowing the Company to retain a portion of the proceeds received from asset disposals completed since the commencement of the Strategic Review. However, there is no certainty that the Company will be able to secure further funding from its Lenders or from other potential providers of capital. Should the Company be unable to secure further funding on acceptable terms, it may be unable to continue the Strategic Review process and conclude any of the initiatives currently being undertaken as part of it, including the Offer. In such circumstances, there could be no certainty that Petroceltic Shareholders would realise any value from their holding of Petroceltic Shares.
Worldview Offer
Under the terms of the Offer, Petroceltic Shareholders would be entitled to receive 3 pence in cash for each Petroceltic Share. The Offer values the entire issued and to be issued share capital of Petroceltic at approx. £6.42 million.
The Offer Price represents a discount of approx:
The Offer will be conducted by way of a contractual takeover offer and will be conditional, inter alia, upon the receipt by Sunny Hill of valid acceptances in respect of not less than 90% of the Petroceltic Shares not beneficially owned or controlled by Worldview, which as at the date of the Offer announcement stood at approx. 29.6% of the Company’s issued share capital.
Board Recommendation
The Board of Petroceltic, which has been advised by Davy, has considered the Offer and has consulted with a number of stakeholders, including the Company’s Lenders.
In evaluating any offer, the Board must consider the risks and uncertainties relating to it. The Board notes that the Offer provides no information on how the Company is to be funded during the Offer period, to allow the completion of the Offer. The Offer also provides no information on the proposed treatment of the Company’s Senior Bank Facility both during the Offer period and upon any change of control of the Company, which, unless waived by the Lenders or otherwise amended, would trigger an immediate repayment obligation in respect of all amounts owing under the Senior Bank Facility. Petroceltic Shareholders should be aware that there is no certainty that the Company will continue to receive waivers from its Lenders or that it will be able to secure funding on acceptable terms to enable it to complete the Strategic Review and/or the Offer or achieve an outcome for Petroceltic Shareholders that is superior to the Offer.
The Board believes that the overall funding position of the Company is a critical determinant of the value, if any, that may be realised through the Strategic Review and, given the Group’s current circumstances, there can be no certainty that Petroceltic Shareholders will realise any value from their holding of Petroceltic Shares. The Board believes that the Offer undervalues the Company on the assumption of its having appropriate long term funding in place.
The Board therefore believes that the terms and conditions of the Offer, combined with the current financial circumstances of the Group, create significant uncertainty regarding the ability for the Offer to be completed in accordance with its terms.
Based on these factors the Board has concluded that it is not possible to give a firm recommendation to all Petroceltic Shareholders at this time to either accept or reject the Offer once made.
Petroceltic Shareholders are therefore recommended to take no action at this time in relation to the Offer.
The Company will continue to update Petroceltic Shareholders on the progress of the Strategic Review process and the status of the Company’s banking waivers in due course.
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