Tullow Oil shares plummet on back of $300m bond plan

Tullow Oil shares tumbled by nearly 12% yesterday on the back of the Irish-founded exploration firm announcing plans to launch a five-year convertible bond aimed at raising $300m (€270m) to help fund the further development of its assets in western and eastern Africa.

The bonds will carry an annual interest rate of over 6.6% and buyers will be able to convert them into shares based on a conversion price of $3.52, which was announced yesterday.

Tullow closed in London at 213.71p, down 11.18%, having earlier slumped by over 15%.

Tullow’s chief financial officer Ian Springett said the high level of demand has enabled the company to strengthen its balance sheet and “diversify our sources of capital”, adding the move reflects the confidence the markets have in Tullow’s business-financing strategy.

Analyst reaction was mixed yesterday, with some suggesting short-selling activity allowing investors to hedge on their investments and pay less to convert their bonds into shares the lower Tullow’s share price falls.

Stifle said it was surprised at the move, which should be slightly dilutive, given Tullow’s recent renewal of its $3.5bn credit lines.

But Royal Bank of Canada analysts said access to alternative sources of long-term capital will be welcome to Tullow, given the need for technical repairs at its Jubilee field in Ghana and insurance repayment requirements.

“Given we believe the company is turning a corner any [share price] weakness should be seen as a chance to buy the dollar-earner ahead of a material increase in production and free cash flow,” it said.

Tullow is also expected to renegotiate a sizeable portion of its lending facilities at the end of this year.