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Oil producer Afren defaults on 2016 bonds, shares fall

(Corrects to remove extraneous stock symbol from headline)

By Roshni Menon

March 4 (Reuters) - Oil producer Afren Plc (LSE: AFR.L - news) has defaulted on its 2016 bonds, missing an interest payment as it negotiates with lenders for a rescue deal that could dilute the interests of its shareholders.

Afren's stock halved in value early on Wednesday after the company said it would preserve cash rather than pay $15 million of interest due on the 2016 notes. A 30-day grace period expired on Tuesday.

The company said it had no immediate obligation to repay the notes and that creditors expect to reach a deal shortly that would allow it to continue as a going concern.

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Most of Afren's oilfields are in Nigeria. The company has lost more than 90 percent of its market value, or 1.5 billion pounds ($2.3 billion), since the end of July, hit by falling oil prices and the dismissal of top executives.

Afren said any additional funding or restructuring deal with bondholders could result in new equity that would "substantially dilute" the interests of shareholders.

Afren's stock was the most traded on the London Stock Exchange. More than 190 million shares changed hands by 1400 GMT, nearly triple the amount of the next most active stock.

A buyout could infuse Afren with cash and direction, analysts have said, but finding a buyer willing to take on the company's debt might be difficult while oil prices remain low. Afren's gross debt was about $1.15 billion as of Sept. 30.

The company, which has not had a permanent chief executive since July 31, broke off talks with Nigeria's Seplat Petroleum Development Co Plc last month.

The Sunday Times has reported that China's Fosun International Ltd is backing a $500 million bid led by Afren co-founder Bert Cooper. (http://thetim.es/1AqObBr)

Institutional investors, including Standard Life Investments and Skagen AS, have cut their holdings in Afren since Jan. 27, when the company first said it was in talks with bondholders.

Short interest in Afren's stock jumped to 9.52 percent at the end of February from almost nothing at the beginning of January, according to investment manager Castellain Capital LLP. (http://bit.ly/1CvvgMF)

Fitch downgraded Afren's long-term rating to 'RD', or Restricted Default, its rating for companies that have defaulted on bond payments but have not entered bankruptcy, administration or other formal winding-up procedures.

Afren's shares were down 28.9 percent at 6.4015 pence at 1525 GMT. ($1 = 0.6527 pounds) (Editing by Robin Paxton)