Investing.com — Shares of Petrofac (LON:) plunged over 11% on Monday following the announcement of a financial restructuring plan that signals major challenges for the company. 

Analysts at Jefferies described the restructuring as bringing “material dilution” to existing shareholders, casting doubt on the company’s ability to recover in the near term. 

The restructuring includes measures such as converting $772 million of existing debt into equity, issuing substantial new shares, and securing fresh funding of at least $325 million. 

Despite these efforts, Petrofac’s future as a going concern remains contingent on the successful implementation of the plan, including obtaining critical creditor and shareholder approvals.

Jefferies pointed to the financial strain caused by the Thai Clean Fuels project as a key driver of Petrofac’s current woes. 

The project has suffered from significant cost overruns, leading to losses in its Engineering and Construction division. 

The company has been embroiled in prolonged discussions with partners to recover incurred costs, further weighing on its financial stability. 

The restructuring announcement follows a year of strategic reviews and signals deeper challenges than previously anticipated.

The announcement flags Petrofac’s precarious financial position and has rattled investor confidence, exacerbated by the prospect of severe shareholder dilution. 

Jefferies noted that existing shareholders are likely to see their stakes drastically reduced as the company aims to issue 97.5% of its new ordinary share capital through the restructuring process. 

Additionally, the company has yet to secure full support from all bank lenders, adding uncertainty to an already fragile situation.