Tullow Oil Tumbles After Announcing $300 Million Bond Sale

  • Shares drop the most since financial crisis in October 2008
  • Convertible bonds often prompt share seloff, says RBC

The Tullow Oil Plc floating production storage and offloading vessel sits docked at the Sembcorp Marine Tuas shipyard in Singapore.

Photographer: Nicky Loh/Bloomberg

Tullow Oil Plc tumbled the most since the global financial crisis almost eight years ago after announcing a $300 million sale of convertible bonds.

The shares closed 13 percent lower in London trading on Wednesday at 210.50 pence, the biggest drop on the Stoxx Europe 600 Index.

“Whenever you see a convertible issue, you invariably see the stock marked down on the day,” even though raising additional capital could be seen as prudent and sensible, Al Stanton, an analyst at RBC Capital Markets, said by phone.

Tullow, which is offering bonds due in 2021, said in April it had secured a $3.5 billion loan facility based on its hydrocarbon reserves following a review by banks. The company’s ratio of net debt to equity has risen as it made significant investments in new projects against a backdrop of weak oil prices.

The bonds are issued at par and carry a coupon of 6.625 percent a year, London-based Tullow said. The initial conversion price will be set at a premium of $3.52, 30 percent above the average share price Wednesday, it said in a statement.

Africa Investment

The proceeds of the bond sale will be used for general corporate purposes and to fund capital investments in West and East Africa, the company said.

Tullow shares sank 60 percent in London last year amid crude’s collapse, and have since rallied 27 percent. Last week the stock rose as the company detailed plans to fix a fault on a production vessel at its flagship field off Ghana. Chief Executive Officer Aidan Heavey said the field will be able to produce “flat out” by the end of this year.

“Small and mid-cap stocks are enduring a hard time in the U.K. at the moment,” Stanton said. “There is continued uncertainty about the more indebted companies,” a category in which Tullow falls into with its $4.7 billion net debt burden, he said.

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