Madagascar Oil threatens delisting as backers play hardball

Despite being on the verge of securing a crucial project partner, Madagascar Oil has warned it may delist from AIM in order to secure urgently needed funds from its major backers.

After the providers of a $22m bridge loan refused to pony-up the final instalment, the oil producer and explorer was forced to go cap-in-hand to its major shareholders, which include many of those same lenders, to try and extract further investment.

The £23m market cap company, which is currently paying for four corporate advisers in Strand Hanson as Nomad, Jefferies as strategic advisor, VSA Capital and Mirabaud Securities as join brokers, spent $8.9m on developing its Tsimiroro Field project in the first half of the year plus $2.7m on further "operational activities".

Management, who recently celebrated Tsimiroro winning the country's first ever environmental permit for an oil exploitation project, also have four potential partners for the block conducting due diligence and confirmed as "still interested in the project".

However, admitting it needed new funds in order to continue to operate as a going concern, Bermuda-incorporated Madagascar said discussions continued about further financing but the backers had stipulated a condition that the company agrees to call a special general meeting to propose the delisting of the company from AIM.

Without this funding from backers, who constitute lenders representing at least 66% by loan value of the outstanding bridge loan and so are in a position to call a default, or elsewhere, the board said it believes that "it is probable that the company would become insolvent and would need to seek a winding-up order in the Bermudan Courts in the very near term".

A vote for delisting, should an EGM be called, would require the approval of at least 75% of the shareholder votes.

The current providers of the bridge loan are Outrider Management, BMK Resources, chairman Andrew Morris's SEP African Ventures vehicle and the John Paul Dejoria Family Trust.

Together own 12.2%, 33.9%, 15.6% and 5.8%, respectively of the company's shares, according to the corporate website, a total of 67.5%.

Just before 1100 GMT, shares in Madagascar Oil were down 36% to 2.25p, having been as low as 1.4p earlier in the day.