KrisEnergy seeks protection as it restructures debts of US$476.8m

Singapore

UPSTREAM oil and gas (O&G) firm KrisEnergy has filed for a six-month debt moratorium, seeking court protection from creditors' legal action while it restructures its debt totalling US$476.8 million.

Keppel Corporation, a creditor and shareholder of KrisEnergy, has publicly come out to support the application and KrisEnergy's management in formulating a restructuring plan.

The moratorium application constitutes an event of default under KrisEnergy's existing debt agreements, comprising a US$200 million revolving credit facility (RCF) with DBS Bank maturing on June 30, 2020; S$130 million, 4 per cent senior unsecured notes due 2022; S$200 million, 4 per cent senior unsecured notes due 2023; about S$139.5 million in principal amount of senior secured zero-coupon notes due 2024; a term loan from HSBC; and a term loan from Standard Chartered Bank, Singapore Branch.

Keppel is a holder of the zero-coupon notes. It also holds the key economic risk in the RCF, under a bilateral contract between Keppel and DBS. This means that Keppel may need to compensate DBS for any loss the bank suffers under the RCF. However, Keppel said the analysis by its appointed financial adviser Borrelli Walsh indicates that Keppel will not be required to make any payment to DBS.

KrisEnergy's wholly owned subsidiary, KrisEnergy (Asia) (KE Asia), owes about US$179 million in outstanding principal to DBS under the RCF as at Aug 13. Keppel holds an indirect interest in this claim.

The bilateral contract was required for DBS to provide the RCF to KE Asia. Keppel also benefits from interest payments made to DBS under the RCF.

In its financial results released on July 18, Keppel attributed a value of about S$131 million to its direct investments in KrisEnergy, comprising the zero-coupon notes, warrants and equity.

A DBS spokesman told The Business Times (BT) on Thursday that DBS had already taken "adequate" allowances for its O&G support service exposures during Q3 2017 and does not expect to take further amounts for the sector. BT also understands that DBS will not need to make provisions for the RCF specifically as it is guaranteed by Keppel.

In a statement on Wednesday, KrisEnergy said it had applied to the High Court of Singapore to start a court-supervised process to reorganise its liabilities. It also requested a court order to restrain, among other things, legal proceedings and enforcement actions by its creditors for six months. The debt moratorium would automatically be in effect for 30 days upon the making of the application.

A pre-trial conference has been set on Aug 20.

Separately, KrisEnergy said on Thursday that it had received a letter of demand from Rubicon Vantage International for the repayment of some US$2.6 million in debt arising from a court judgment granted in the UK. The letter stated that if KrisEnergy fails to pay up within 14 days, Rubicon will seek to enforce the judgment such as by potentially starting winding-up proceedings against KrisEnergy. KrisEnergy applied to the Singapore court to restrain Rubicon from taking any steps to enforce the judgment, and the court granted this order on Thursday.

KrisEnergy said it "would not be feasible" for it to make payment of its financial obligations as they fall due.

In its financial results, released on Wednesday, KrisEnergy posted a first half net loss that resulted in a capital deficiency position. This brought the total debt recognised on the balance sheet to US$476.8 million, while gearing stood at 110.8 per cent as at June 30.Keppel said it supports KrisEnergy's application because without a moratorium, there is "significant risk" that creditors' legal action may jeopardise KrisEnergy's ability to come up with a debt restructuring plan.

Despite the support, Keppel said it reserves the right to evaluate the restructuring plan once KrisEnergy has developed a firm proposal, and to approve or reject it.

KrisEnergy called for a trading suspension on Wednesday. Keppel shares closed at S$5.90 on Thursday, down four cents or 0.67 per cent.