April 1, 2015

Gulf Keystone Petroleum's placing little more than a band-aid, broker says

Today’s equity placing is not a solution for beleaguered Gulf Keystone (LON:GKP), according to Canaccord Genuity, which remains a seller of the stock.


The up for sale Kurdistan-focused oil producer raised around US$40mln to tide it over while takeover talks continue and the board considers long-term funding options.


The equity issue did not come as a surprise, as it was flagged on 25 February and again on 12 March.


The broker said that, at first glance, the funds are not required to meet the company’s loan note obligations, due in the middle of this month, but then the company’s US$86.3mln of cash may be earmarked for other payables, which might substantially reduce the available balance sheet headroom.


“Even if that is not the case, then we do not see this equity placing as transformational,” Canaccord Genuity said, as it reiterated its ‘sell’ recommendation, and moved the price target down from 40p to the placing a couple of pence below the placing price of 32p.


“In our view it does not provide sufficient funding to raise production capacity above the current 40,000 bopd [barrels of oil per day] level - there are good arguments against this anyway until there is more clarity on the payment process - nor do we see it as sufficiently large to place the company in a notably stronger negotiating position for possible future asset or corporate sale discussions,” the broker said.



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