The Tullow share price is down 13% on the back of an announcement that the company plans to raise $300m through a convertible bond. The bond is expected to carry interest of between 5.875% and 6.625% and to be convertible at a 30-35% premium.

To be honest, I am a bit confused at the share price reaction.In their recent trading statement Tullow said…”Strengthening the balance sheet and debt reduction continue to be key priorities for Tullow this year. Options available include further rationalisation of our cost base, further cuts to discretionary capital expenditure, portfolio management and other funding options”.

So for now they have gone with “other funding options”. I’m not sure why this should be such a surprise. Sure it doesn’t reduce net debt but it does give them additional headroom to get them through to the end of this year by which time with TEN on stream net debt should start to decline rapidly.

OK, the convertibility of the bond means it is slightly dilutive to shareholder value in the long term. But it’s convertible at a 30-35% premium. Personally I would rather have additional balance sheet comfort and share some of the upside with the holders of the coverts. So I have just bought another 1000 shares at 209p.

But then I did call this blog Contrarian Miner for a reason – my enthusiasm is clearly not shared by the market.

The only oddity I have just spotted – and its a bit late to be thinking this, given I have already bought – is that the announcement says the bonds are expected to be convertible at a 30-35% premium to the VWAP on 6 July (i.e. today not yesterday?). Surely that is unusual and opens the door for potential investors in the bonds to be playing games with the price today? Your thoughts welcome.