KrisEnergy's formal offer fails to ease misgivings of bond holders

KrisEnergy needs a "yes" vote from more than 75 per cent of bond holders before majority shareholder Keppel Corp will agree to commit to an equity injection of up to $140 million and lender DBS will extend its credit headroom.
KrisEnergy needs a "yes" vote from more than 75 per cent of bond holders before majority shareholder Keppel Corp will agree to commit to an equity injection of up to $140 million and lender DBS will extend its credit headroom.PHOTO: KRISENERGY

Final terms slightly better but investors may yet block $330m restructuring plan

KrisEnergy has launched a formal process to ask bond holders to defer payment on $330 million worth of bonds by five years - and at a lower interest rate.

The final terms put out yesterday represent a slight improvement on the terms initially proposed, after bond holders voiced misgivings.

KrisEnergy still wants to reduce the annual coupon on its $130 million bonds originally due in 2017 and $200 million bonds due in 2018 to 4 per cent from 6.25 per cent and 5.75 per cent respectively over the next five years. However, it will make a larger portion of the payments in cash under the latest proposal now the subject of what is called a "consent solicitation process".

Bond holders would get a 2 per cent cash coupon in the first two years (the other 2 per cent would be accrued or paid at KrisEnergy's discretion), and would start receiving the full 4 per cent coupon in cash from the third year.

The oil and gas explorer is also dangling more "upside" for bond holders in the form of a 1 per cent cash coupon if Brent crude shoots above US$70 a barrel; 2 per cent if it rises above US$80; and 3 per cent if it tops US$90. Brent crude traded below US$47 a barrel yesterday.

KrisEnergy needs a "yes" vote from more than 75 per cent of bond holders before majority shareholder Keppel Corp will agree to commit to an equity injection of up to $140 million and lender DBS will extend its credit headroom.

Many bond holders read the latest offer in dismay. Mr Terence Lin, assistant director of bonds and portfolio management at iFast Corp, which is representing some individual investors, said: "The revised terms are disappointing, because it doesn't seem to show that the company has listened to our feedback."

The oil price-linked coupon banks on "blue-sky projections" that are way above long-term forecasts, he said. "If oil prices go back to US$70 or US$80 a barrel, KrisEnergy will be fairly cash-generative and the 1 per cent upside note holders get is low compared with equity upside," Mr Lin added.

He was also concerned that new financiers like Keppel would come in on a secured basis, meaning that bond holders would be subordinated in a liquidiation event. "We want the company to survive, definitely, but people are very concerned because they expected their life savings back in 2017, not 2022."

Bond holders may yet block the restructuring plan. Mr Lin said an informal group of bond holders has grown steadily, with a number of other institutional investors joining up with iFast after the consent solicitation was launched yesterday. A meeting with KrisEnergy management will also take place today.

But interim chief executive Jeffrey MacDonald told The Straits Times that the purpose of that meeting is to explain the offer only, not to negotiate new terms. "We are not planning to have a second consent solicitation exercise. We have a very critical liquidity situation. We have put together a $50 million bridge which will effectively put us through to the end of January. $15 million of that has already been drawn, but we are not allowed to draw the remaining $35 million unless we get this consent solicitation passed."

A consent solicitation meeting will be held on Dec 9, the same day KrisEnergy is due to make a $4.06 million coupon payment. KrisEnergy had US$37 million in unused sources of liquidity as at Sept 30.

Chief financial officer Kiran Raj said: "It will be a default situation if we don't pay that coupon. But at this point in time we are looking to meet all of our obligations." The counter fell 0.8 cent or 4.62 per cent to close at 16.5 cents yesterday.

A version of this article appeared in the print edition of The Straits Times on November 18, 2016, with the headline 'KrisEnergy's formal offer fails to ease misgivings of bond holders'. Print Edition | Subscribe