Secured Financing Facility Extension, Strategic Update and Intention to Delist
Gulfsands Petroleum plc (“Gulfsands” or the “Company” – AIM: GPX), the oil and gas company with assets in Syria and Colombia, today announces that it has finalised a £4 million extension to its existing £4 million Secured Term Financing Facility (the “Facility”) from its major shareholders, being ME Investments Ltd, Waterford Finance & Investment Limited and Blake Holdings Limited (a company controlled by Mr. Richard Griffiths) (together the “Major Shareholders” or “Lenders”). As a result of strategic discussions with the Major Shareholders related to the Facility extension, the Directors have also concluded that it would currently be in the best interests of the Company to seek Shareholder approval to cancel the admission of its Ordinary Shares from trading on AIM (the “Delisting”), a decision which is supported by all three Major Shareholders who have each provided irrevocable undertakings to vote in favour of the Delisting which amount to approximately 83% of the votes to be cast at the general meeting to be convened to approve the Delisting.
Secured Term Financing Extension
On 16 February 2017, the Company announced that it had entered into the Facility. On 17 January 2018, the Company confirmed that it had completed the draw-down of all remaining tranches of the Facility. Today the Company announces that it has entered into an amendment agreement to the Facility, with the Major Shareholders to extend the maturity of the Facility for 12 months to 23 February 2021 and that the Major Shareholders have committed to provide four additional tranches of £1 million each, to be available on each of 30 June 2018, 31 December 2018, 30 June 2019 and 31 December 2019 (the “Facility Amendment”).
The proportionate participation of the Lenders is unchanged with the additional tranches provided as follows:
The Company’s option to convert the debt on maturity has been amended to reflect the proposed Delisting and so now makes reference to the 90-day average closing price prior to 19 March 2018 rather than the 90-day average closing price prior to repayment.
All other terms are unchanged and are summarised as follows:
· Interest on loans made (together with accrued fees and interest) shall run at 7% per annum. A commitment fee of 1% per annum shall run on any undrawn proportion of the Facility. All fees and interest accrue quarterly until maturity.
· All, or part, of the undrawn portion of the Facility may be cancelled at any time by the Company. The Company may prepay the whole or any part (of at least £800,000) of the outstanding amounts at any time subject to paying a 10% premium on the amount pre-paid.
· The proceeds will be used for general and administrative expenses of the Group and for working capital purposes and, based on current forecasts, if fully drawn down, are anticipated to fund the Company through to the middle of 2020.
· The Board may resolve to seek equity financing for the Group in due course should the need arise. If an equity raise takes place, the Lenders will be entitled to be pre-paid on the terms noted above, provided the Lenders agree that the full amount to be pre-paid is used by the Lenders to subscribe for equity in such equity raise at the issue price.
· The maturity date of the Facility is now 4 years from the first drawdown date, being 23 February 2021, at which date all outstanding amounts will be repayable in cash unless the Company has exercised an equity conversion right. Pursuant to that right, the outstanding amounts to be repaid may be converted at the Company’s option into shares of the Company at a price equal to the lower of: (i) the 90-day average closing price as at 19 March 2018; and (ii) the lowest price at which the Company has raised equity capital during the life of the Facility.
· The Facility is secured: by a mortgage over the shares of the Company’s direct subsidiary, Gulfsands Petroleum Limited; by a charge over certain intercompany receivables of the Company; by a charge over certain bank accounts of the Company (should the Lenders require such a charge to be created); and through the issue of one ordinary share in the share capital of Gulfsands Petroleum Limited to the security trustee. The security trustee for the Facility is Weighbridge Trust. The articles of association of Gulfsands Petroleum Limited were amended when the Facility was first put in place to include certain reserved matters requiring unanimous shareholder consent, pre-emption provisions and compulsory transfer provisions. In addition to the right to enforce the security on an insolvency-related event of default, the Lenders have the right to convert outstanding amounts under the Facility into a direct equity holding in Gulfsands Petroleum Limited, at a fair price (from a financial point of view taking into account all relevant circumstances) to be determined by an expert at the time.
Entering into this Facility Amendment by the Lenders is considered a related party transaction pursuant to the AIM Rules. The independent Directors of Gulfsands for the purposes of this transaction (being Joe Darby, Richard Milne, John Bell and Andrew Morris,) consider, having consulted with the Company’s Nominated Adviser, that the terms of the Facility Amendment are fair and reasonable insofar as the shareholders of Gulfsands are concerned.
In conjunction with the agreement to the Facility Amendment, the Major Shareholders have indicated their support for a progression of the Company’s medium-term strategy.
The Company’s long-term strategy remains to be a major oil and gas producer in the Middle East. The Company is committed to Syria and continues to view its world class Block 26 asset as core to its strategy. The Company has a long history and experience in the Middle East region, in particular in the Levant, and despite the reported increase in hostilities in recent weeks, the Board remains cautiously optimistic in the medium-term regarding the improving environment in the region. Consequently, the Board has decided to pursue a more progressive medium-term strategy beyond merely preserving and protecting its existing core assets.
Following the proposed Delisting, the Board will pursue this progressive strategy which will include: 1) the potential acquisition of additional oil and gas assets and other business development initiatives in the region; and 2) working with the international community, in accordance with all applicable sanctions, to return to Syria as soon as possible. With the Facility Amendment in place, the Company’s general and administrative costs are now expected to be funded through to the middle of 2020. The Company’s management is already in the process of evaluating a number of potential opportunities and the Board is of the opinion that further opportunities may arise within the region over the coming period. There can, however, be no guarantee that any of these opportunities will materialise into meaningful projects for the Group.
Intention to Delist
In light of this agreed medium-term strategy and the Facility Amendment, the Major Shareholders requested that the Board consider the merits and risks of being a listed company versus a delisted company. Following due consideration, the Board has concluded that at this time, it is in the best interests of the Company to proceed as a delisted entity, and therefore has resolved to pursue the Delisting.
More details of the reasons behind the decision to pursue the Delisting and the measures that are being put in place to protect the interests of minority shareholders in the Company after the Delisting, are outlined in the Circular which includes a letter to shareholders from the Senior Independent Non-Executive Director. This letter is appended to this RNS for information.
In summary, the Board considers that the Company no longer reaps the expected benefits of the listing as it no longer provides the Company with any significant access to funding from the broader capital markets, nor does it provide any significant liquidity to shareholders. This lack of liquidity results in a quoted share price which the Directors believe is out of line with the fundamental value of the Company’s business. The Company’s return to a growth strategy, and an anticipated sustained period of increased corporate activity will require significant management focus. At this time, therefore, the Board believes that the costs and management burden of retaining the listing on AIM, especially in the context of a small executive team and limited working capital, has become disproportionate to the benefits to the Company.
In respect of the Delisting itself, the Company will be today posting to Shareholders a circular (the “Circular”) including a notice of a General Meeting to be held at 11a.m. (London time) on 10 April 2018 at the offices of Shakespeare Martineau LLP, 60 Gracechurch Street, London EC3V 0HR, to propose a resolution to approve the Delisting (the “Resolution”). The preferred date of cancellation of the admission of the Company’s Ordinary Shares to trading on AIM is 23 April 2018.
Following the proposed Delisting, the Company intends to make arrangements for a secondary market trading facility, to assist shareholders to trade in the Ordinary Shares, to be put in place from the date of Delisting, if the Resolution is passed. The details of this trading facility will be announced prior to the date of Delisting.
The Board has received binding undertakings from the Major Shareholders which will ensure that certain standards of corporate governance are maintained for a period of at least two years following the Delisting. In particular, for this period, the Major Shareholders and the Company have agreed:
1. To ensure that the Company will remain registered as a public limited company (“PLC”) pursuant to the Companies Act 2006 in the United Kingdom, notwithstanding the Delisting, and will not re-register as a private limited company;
2. To maintain its website and post periodic updates, although following the Delisting there will be no obligation on the Company to include all information required under AIM Rule 26 or the Market Abuse Regulation (“MAR”) or to update the website as required by the AIM rules or MAR;
3. To ensure that the current balance of the Board and any Board Committees will be maintained such that there will at all times be a majority of the Board who are independent of the Executive Directors and a majority of the Board who are independent of the Major Shareholders;
4. The Company shall be managed in accordance with such provisions of the QCA Code as the Board considers practicable and appropriate for the size, stage of development and operations of the Group at the relevant time and/or such other UK corporate governance regime as may be adopted by the Board from time to time;
5. The approval of directors who are independent of any conflicted Major Shareholder (the “Independent Directors”) shall be required in terms of any transactions with a Major Shareholder (a “Related Party Transaction”) and approval of any Related Party Transaction may be subject, at the discretion of the Independent Directors, to receipt of a written opinion that the terms of such Related Party Transaction are fair and reasonable in so far as all shareholders are concerned; and
6. Furthermore, the Independent Directors shall be able to decide on the inclusion of, and subsequent form of, any pre-emptive component of an equity fundraising to be undertaken by the Company, provided that Independent Directors have first confirmed in writing to the Board that they consider the pre-emptive component to be reasonable in the circumstances.
The Circular and the Notice of the General Meeting and an electronic copy of both will also be available on the Company’s website at www.gulfsands.com.
Joe Darby, Senior Independent Director Gulfsands, Petroleum said:
“In the context of reviewing the future financing of the Company, and its medium-term strategic objectives, an independent committee of the Board was established to consider the proposal to delist the Company’s shares from AIM. That committee, which I chair, has concluded it is in the best interests of the Company and its shareholders to de-list from AIM, while remaining as an unlisted public company. The committee concluded that there was minimal benefit in currently being listed particularly in the context of access to funding from the boarder capital markets, given that the only recent material sources of finance have been the Major Shareholders who have once again shown their commitment to the Company though the Facility extension.
The committee has ensured that considerable protection for minority shareholders has been put in place for at least two years. This includes a secondary market trading facility which we intend to establish and the fact that the Board will continue to have a majority of directors who are independent of the Major Shareholders. As a result of the financing arrangement announced today, Gulfsands is now funded for an additional two years and can focus on implementing its stated strategy.”
For further information, please refer to the Company’s website at www.gulfsands.com
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