Judge cites 'clear case of balance sheet insolvency' for placing KS Energy and its key unit under IJM

Singapore

IN granting OCBC's application to place embattled KS Energy and its key unit under interim judicial management (IJM), High Court Justice Aedit Abdullah said there is a "very clear case of balance sheet insolvency" at the oil services group and that a JM order would seem highly likely, "short of a miracle".

He said in a brief grounds of decision seen by The Business Times (BT) on Friday: "While miracles can sometimes happen, even in commercial settings, some evidence would typically need to be provided of a 'white knight' on the verge of coming to the rescue."

In particular, the judge said, figures and specific proposals should be placed before the court to show that KS Energy will be able to answer an application for JM.

In this case, however, the companies would require the cooperation of the creditor, OCBC, which is seeking the IJM orders. The likelihood of any rescue independent of that creditor is "highly unlikely", he added.

Furthermore, the judge noted that counsel for KS Energy and KS Drilling have rightly recognised that any attempt at a scheme of arrangement without OCBC's support would likely fail.

Any refusal of an order for IJM would merely be "postponing the highly likely or inevitable outcome, and in the meantime, would put the companies' assets at risk of further deterioration because of the current insolvency", Justice Aedit noted.

OCBC applied to place the mainboard-listed company and its unit under JM last month. Sarjit Singh Gill SC and Daniel Tan from law firm Shook Lin & Bok are lead counsel for the bank.

According to the summary document seen on Friday, OCBC holds 61.1 per cent of KS Energy's total liabilities and 86.1 per cent of KS Drilling's total liabilities. These facilities include a term loan for up to US$282.3 million and a bridging loan of S$5 million - both to KS Drilling.

KS Drilling is an 80.09 per cent-owned subsidiary of KS Energy, which had provided a guarantee of up to US$150 million for the term loan, and a further guarantee of up to S$5 million for the bridging loan.

BT previously reported that OCBC had said that it was "imperative" for IJMs to be urgently appointed to act for both firms pending the JM hearing, as there were "serious doubts and concerns" regarding the firms' current management on the back of the recent filing of criminal charges against the firm's former chairman and chief executive Kris Wiluan, an Indonesian.

In its application, the bank also cited "alarming cash burn rates and losses" suffered by the companies in recent years.

Mr Wiluan faces 112 charges of alleged false trading and market rigging for share purchases made between 2014 and 2016.

KS Energy previously said that those were his personal share purchases and were separate from the group's current financial problems.

In the brief grounds of decision, Justice Aedit said he had borne in mind that the charges against Mr Wiluan "cannot be taken as indicative of guilt", and that the relevance of these charges to the IJM applications sought was "at best only indirect".

"The charges relate to market manipulation, which, while a serious offence if made out, would not pose a direct threat to the assets of the company, unlike charges of fraud or criminal breach of trust," he added.

Trading in the shares of KS Energy has been suspended since Aug 12.