Investors in Gulfsands Petroleum (LSE:GPX) scrambled for the exit today after the Syria-focused oil and gas firm announced plans to delist from AIM, once again highlighting the geopolitical risk of resource investments.
In a circular to shareholders, Gulfsands said the costs and management burden of an ongoing AIM listing now outweigh the benefits of being a London-listed entity. As a result, it will seek shareholder approval to cancel the admission of its shares to AIM at a general meeting in London on 10 April. However, with ME Investments, Waterford Finance & Investment, and Blake Holdings – the business’s three principal activist shareholders who collectively own 83pc of voting rights – initiating the delisting discussion in the first place, it looks likely to go ahead. Investors exiting Gulfsands in an attempt to lock in some value prior de-listing sent the company’s share price down 55.6pc, or 2.5p, to 2p.
Gulfsands, which once had a share price in excess of 120p, established an oilfield in Syria before war broke out in the country. Ongoing conflicts in Syria and EU sanctions against the country in 2011 have subsequently crippled its operations and financials. Gulfsands has been unable to generate any revenue from its core assets over this period and has now been wholly reliant on using its own cash resources and external funding for more than three years.
In today’s announcement, Gulfsands said its AIM listing had not provided it with access to funding from the broader market, with capital mostly coming from the major shareholders. Furthermore, the firm’s board thinks these shareholders are likely to remain the only realistic source of funding going forward.
This limited shareholder base has suppressed liquidity for existing minority shareholders, often causing pricing volatility in its share price driven by speculation. Gulfsands said this had led its share price to be significantly out of line with its fundamental value. After de-listing, Gulfsands and its principal shareholders have agreed to re-launch a growth strategy that will see the business acquire additional oil and gas assets and work on returning to Syria as soon as possible. The company said it has already begun to evaluate a number of potential opportunities and believes more may be on the way. Its long-term strategy remains to be a major oil and gas producer in the Middle East.
In line with its new strategy, the company has finalised a £4m extension to its existing £4m secured term financing facility from ME, Waterford, and Blake Holdings. This provides it with working capital expected to last until the middle of 2020.
In order to pursue growth, Gulfsands said the costs and management burden of a listing would be too high given the firm’s small executive team and limited working capital. That being said, the organisation plans to periodically assess whether it is worth re-listing on AIM going forward. However, it added that there is no certainty it will ever return to the public market.
Gulfsands acknowledged that the de-listing is likely to reduce the liquidity of its share significantly and could ‘adversely affect’ its share price. As such, the company has said it intends to make arrangements for a secondary market trading facility following the delisting and will ensure that specific corporate governance standards are maintained for at least two years.
Joe Darby, senior independent director at 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 [sic] broader 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 [sic] through 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.’
Author: Daniel Flynn
Disclosure: The author does not own shares in the companies mentioned.