Lasmo plans pounds 200m issue

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The Independent Online
INSTITUTIONAL shareholders in Lasmo, the oil exploration company, are bracing themselves for a rights issue of up to pounds 200m as the firm tries to cut its huge debt mountain.

The company, which reported last week a pounds 131m loss and omitted its final dividend, is being pressed by its financial advisers, Schroder and NatWest Securities, for a cash call to help repair the damage caused by its disastrous pounds 1bn takeover of the rival Ultramar about three years ago.

Their hand is likely to be strengthened by growing acceptance among Lasmo's key institutional shareholders that it urgently needs an equity injection to cope with a weak oil price and rising US interest rates. The group's debts total about pounds 800m, or 75 per cent of shareholders' funds, and much of this is in US dollars.

Lasmo is set to spend several hundred million pounds over the next two years to develop new fields such as Liverpool Bay, which could push gearing up to about 100 per cent.

Lasmo is raising cash by selling interests in maturing fields, but asset prices have been hit hard by the low oil price. It was forced to cancel the sale of a one-third stake in Markham, the North Sea gas field, last year after failing to find buyers at the pounds 120m asking price. City investors now fear the company will have to sell prime assets if they do not back a deeply discounted rights issue of between pounds 150m and pounds 200m.

The only thing holding back a cash call is the search for a new chairman - though Lasmo is understood to have told some institutions that an appointment is imminent.

Growing support for the rights issue has been helped by the company's cost-cutting programme, which started after Chris Greentree was ousted by Joe Darby as Lasmo's chief executive last spring.

One blue-chip investor said: 'It won't be the first time that a company's shareholders will have to pay to correct management mistakes. We feel the present management is doing a reasonable job given where they started from.

'We are realistic enough to know that Lasmo has some potentially good assets which require investment and a higher oil price.'

The company's exploration programme in Colombia, one of the world's most promising oil regions, has been dealt a significant blow. Last year it brought in British Petroleum to drill for oil in one of its key blocks, but technical problems forced the project's abandonment. Lasmo's exploration licence in the area has expired.

The company's results were hit by a pounds 120m asset write-off, and there is still some concern that it may be forced into further write-offs if the oil price fails to recover.

The company is again attracting takeover speculation, with Total, the French oil and chemicals group, regarded as a possible bidder. Total is rumoured to be planning a pounds 500m rights issue for the takeover.