(Alliance News) - Shares in Petrofac Ltd plunged on Monday after it warned a financial restructuring could see a chunk of its debt converted to equity, resulting in dilution of existing shareholders.

The company also flagged an extra USD130 million charge in its engineering and construction division and said the release of full-year results would be delayed.

Shares in Petrofac were down 26% to 16.51 pence each in London on Monday morning. They have lost 75% of their value in the past 12 months.

Petrofac is an energy infrastructure company with core markets in the Middle East and North Africa.

As part of ongoing financial restructuring, a group of senior secured noteholders have made a proposal to provide further credit of up to USD300 million, comprising USD200 million of new funds and USD100 million of credit support to help secure performance guarantees for certain of its existing contracts.

This proposal is conditional upon Petrofac securing these performance guarantees, and would require the conversion of a "significant proportion" of the group's existing debt to equity.

Petrofac said it is in active discussions with credit providers to obtain the required guarantees, which would also release over USD200 million of collateral and retentions.

The talks come as Petrofac continues to manage payment obligations to preserve liquidity, whilst pushing ahead with the restructuring with other stakeholders.

Upcoming payment obligations include amortisation payments due on bank facilities and the coupon payment due on its senior secured notes on May 15.

Petrofac said its banks have agreed to a number of rolling short-term deferrals of contractual amortisation payments while it progresses the financial restructuring.

But it does not expect to make the payment of the bond coupon on the due date.

Managing these payment obligations is of "critical importance" to maintain sufficient liquidity in the short-term, Petrofac said, while it is working to implement the financial restructuring.

Petrofac said it was making good progress with non-core asset disposals, with non-binding offers received for the group's share in the PM304 production sharing contract in Malaysia, which should be completed in the third quarter.

Offers are in line with the value of anticipated cash flows over the remaining term of the PSC which expires in September 2026, it said.

Chair Rene Medori said: "The board and management are focused on arriving at a comprehensive refinancing solution as quickly as possible. We are encouraged by the engagement with the ad-hoc group of noteholders, which we hope demonstrates momentum in this complex process."

Petrofac also expects to take an additional USD130 million charge in its engineering and construction division.

This reflects the timing of negotiations on the Thai Oil Clean Fuels project.

Petrofac and its joint venture partners remain engaged with its client in relation to the reimbursement of additional project costs. But management does not expect to have progressed discussions sufficiently to recognise the expected outcome in its full-year results.

Petrofac said net debt at December 31 was USD583 million, lower than guided in December, and in line with interim results.

Otherwise the financial performance for the year ending December is expected to be broadly in line with the trading update in December.

Petrofac said it expects a short delay in issuing its 2023 results, which it now expects to publish by May 31, while its auditors finalise the report.

As a result, shares in Petrofac will be suspended on Wednesday this week until the results are published.

By Jeremy Cutler, Alliance News reporter

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