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Gulf Keystone Received An Offer From Rival DNO ASA


The offer suggests that each share of Gulf Keystone (OTCQX:GUKYF) could worth GBP 0.4 pence and 0.00741 DNO (OTCPK:DTNOF) shares after announced debt-to-equity swap realization.

Gulf Keystone (GKP) share price is trading at GBP 4.85 pence level after 24% rising at London Stock Exchange.

GKP shareholders could get $120m cash and about 13% share in DNO equity. Additionally, $100m of GKP notes with 13% coupon due to April 2017 would be exchanged to DNO 5yr notes with 8.75% coupon.

The offer came two week after my conclusion in the note:

In that situation, Gulf Keystone is the most probable M&A deal target after cleaning its balance sheet.

I expect, GKP stakeholders will reject this proposal because of low valuation offered.

Possibly, existing shareholders are interest in minority stake in financially stable DNO with good management against minority stake in controlled by distressed hedge funds GKP with still $100m 2017 notes on the balance. There is a risk of additional massive dilution in the near-term for minority shareholders in GKP.

Bondholders are likely to wait for much better offer, fully in control of GKP. The company's bondholders will take control, receiving an 85.5 per cent stake in equity.

It is certainly a good start for M&A activity in Kurdistan. It also shows that DNO management has a positive view on Iraqi Kurdistan perspectives after several months of consistent payments for export.

Additionally, Genel Energy (OTCPK:GEGYF) revealed a very positive view in its earnings report yesterday:

Against a difficult backdrop, the Kurdistan Regional Government has moved forward impressively with its economic reforms, which are designed to reduce costs and increase revenues. As the economy moves from stabilisation to budget surplus, the KRG has stated its intention to increase contractor payments and accelerate the recovery of outstanding receivables.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in GEGYF over the next 72 hours.