Gulf Keystone Shares Fluctuate Widely

Traded volumes hit record high as retail investors pile in; junk bond funds set to get large stake after debt swap.

Gulf Keystone's stock spiked and fell by a third on Tuesday as retail investors flooded chatrooms trying to figure out how junk bond funds led by former JP Morgan and Lehman Brothers traders will help restructure the oil firm.

Last week Gulf Keystone, crippled by low oil prices and non-payments from Iraqi Kurdistan, announced its bondholders had agreed to swap $500 million of debt for equity, all but wiping out some of the world's top funds as shareholders.

Little-known distressed debt funds such as Sothic Capital, co-run by former JPM trader Gertjan Koomen, and CapeView Capital, co-run for former Lehman trader Theo Phanos, are set to receive significant stakes, according to sources close to the firm and bond holders.

GLG Partners, part of hedge fund Man Group, and investment fund Taconic Capital are also likely to become large equity owners: debt-holders are set to get 85.5 percent of Gulf Keystone, while existing shareholders would hold just 4.5 percent unless they buy new shares in the $25 million open offer for 10 percent of the expanded equity.

On Tuesday, Gulf Keystone' stock rose 32 percent before erasing most of the gains. At 6 pence a share it was still at its highest since April, off last week's all-time lows of 2.5 pence. Its all-time high was 465 pence, when the firm was worth over 3 billion pounds ($4 billion).

Traded volumes spiked to an all-time high of 125 million shares, meaning over 10 percent of the firm changed hands on Tuesday driven mainly by retail investors.

Gulf Keystone was the most discussed stock by far on the Interactive Investor and ADVFN message boards, two of the most popular chat tools for retail investors in Britain.

Theories behind the stock jump ranged from an imminent hostile takeover on an improved debt outlook to a major liquidation of short positions by bond holders because they had managed to push the restructuring through last week and no longer needed short positions as hedges for convertible bonds.

"We've had some clients buying into it," said Jonathan Roy, advisory investment manager at Charles Hanover Investments, adding the restructuring had diluted the share price, but had now alleviated funding concerns.

"Their assets on the ground are attractive, in spite of the political instability, and there's often takeover talk surrounding Gulf Keystone," he added. He did not name a prospective bidder.

MORE VOLATILITY
Gulf Keystone's shareholders have yet to approve the debt swap and the drastic dilution. But the company has predicted insolvency if the deal doesn't go through.

That gives the likes of Sothic and CapeView a strong chance of becoming the driving forces behind changes at Gulf Keystone.

The two funds as well as GLG Partners and Taconic declined to comment.

In 2015, Sothic and CapeView both participated in a similarly complicated debt refinancing after low gold prices sapped Russia-focused, London-listed miner Petropavlovsk (PPLKY) . The firm has since become a battleground for shareholders including Russian oil-to-metals tycoon Viktor Vekselberg.

Gulf Keystone has said it has had as many as 18 merger and acquisition approaches in the past but most buyers were spooked by heavy debt levels.

"Hedge funds will usually be on the shareholder register for a shorter period of time compared to longer-term investors, which increases volatility," said Sam Wahab, oil and gas analyst at Cantor Fitzgerald.

By Alasdair Pal and Dmitry Zhdannikov