Afren and the 3 little pigs.

“'Little pigs, little pigs let me come in' said the wolf, 'not by the hair of my chinny chin chin….' Cried the 3 little pigs.”

Well an interesting weekend for Afren holders, let’s just recap quickly.

Afren said they had short term liquidity problems due to the low oil price and needed help to survive.

Seplat offered a rumoured $200m to help them out in return for control of the $2bn assets….They were told to go away.

The Bond holders then offered an extension of 30 days for some interest due, this was not an act of kindness, but had more to do with the fact that they needed some time to put a bid together with the other bondholders and gave them time to plant various scare stories in the media about how bad things were for Afren..(nothing like a cheap fire sale).

Last week the bond holders put an offer into Afren to give them $300m in return for the company leaving the shareholders with nothing..The Afren BOD then asked its major shareholders what they thought about the bid and the answer was an unsurprising…..NO

Finally this weekend we have Fosun making a $500m offer, with something for shareholders and a continued market listing….

Afren have said maybe, let’s wait another 30 days and see what else materialises for its £2bn of assets and £800m or so of debt…

For the bondholders, the only hope of them walking away with everything was a knockout punch into submission, scaring away any potential bidders. They could then invest a bit of money and maybe, in 12 months time, float the company without any debt for around £2bn maybe £2.5bn.

Well thankfully the 3 little pigs on the Afren board have turned round and said no to the big bad wolfs. Afren is made of stone, the bond holders cannot blow the house down and instead we the shareholders can continue to live in what is a valuable desirable house.

It’s really too late for the bondholders to come back from this imho. They have two simple choices, either increase their bid so that the shareholders are not asked to carry the entire can at their own greedy benefit or start negotiations with the potential bidders to ensure they can get as little a haircut as possible and maybe some nice warrants to make them happy.

For Afren the bids we have had so far have all been highly opportunistic, value adding bids from the likes of Chevron could well be waiting in the wings. As an investor it’s possible to see a bid for as much as $1bn for a substantial stake in the company, this would allow the company to cover all its debts due in 2015 and 2016, give it all the money it needs to raise production, restructure the company and make all payments until 2017.

In the shorter term, a preferred bidder could come along and grant a loan to Afren for say $100m to cover a few months of negotiations and to get the bond holders off their backs.

Afren now have so many options, the most important thing was getting rid of the wolf and calling their bluff…

Well done Afren BOD