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KrisEnergy's debt revamp rubs bondholders wrong way

Unhappy bondholders oppose disproportionate allocation for shareholders; rally for a better deal

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Loss-incurring KrisEnergy has barely recovered from the 2014-2017 oil crash which had hurt liquidity, hampered access to capital markets and crimped its ability to develop oil assets.

Singapore

A GROUP of "desperate" bondholders of ailing KrisEnergy have banded together to bat for a better deal and oppose the upstream oil and gas firm's proposed restructuring - its second debt workout in four years - as the pandemic-led oil shock compounds the firm's debt dilemma.

The disgruntled lot are especially miffed that the scheme, which largely involves a debt-to-equity swop, the details of which were released only a month ago by KrisEnergy, "disproportionately" favours the firm's largest shareholder - Keppel Corp.

"We feel helpless and betrayed and want a middle ground. After being subjected to years of financial and emotional trauma, the bondholders now see their hard-earned investments at the brink of eradication," laments Chris Ng, an investor in KrisEnergy's bonds, who has so far helped rally unhappy bondholders to push for a less bitter outcome.

A week ago, the group reached out to the Securities Investors Association of Singapore (SIAS) for help. Bondholders held a meeting with SIAS on Thursday to provide feedback and form an informal steering committee. The informal committee is expected to meet KrisEnergy's top executives at a dialogue session to be arranged and moderated by SIAS sometime next week.

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For some bondholders, it is less about the deal's economics and more the lack of engagement that has vexed them.

"At least give us a seat at the table to say 'Hey, this is not good enough'. What is the rationale of the disproportionate allocation?" said Woon Lai Har, who doesn't consider herself to be a novice investor.

"How does a zero coupon note (holder) that contributed S$140 million get over 50 per cent equity while we, who have in totality jointly sank in S$330 million and have funded this company significantly, get less?

"At least explain the rationale instead of saying 'take it or leave it', said Ms Woon, who had picked up KrisEnergy bonds from the secondary market, wowed by the "nameplate" of the oil and gas firm's key shareholder Keppel, which counts Temasek Holdings as its largest shareholder.

"We are not agitators. We just want to talk and discuss if it's better to throw new money into a bad market rather than liquidate," she added

When contacted, a spokesperson from KrisEnergy replied: "There are preparations underway to shortly hold a moderated session with bondholders and therefore the company believes it would be premature to express any views prior to that session."

Keppel owns some 40 per cent of KrisEnergy and is a significant direct creditor of the mainboard-listed firm, arising from its holding of some S$140 million zero coupon notes (ZCN) due 2024 to rescue KrisEnergy in 2016 when it was in dire need of fresh funds amid the oil slump. Keppel has also guaranteed a revolving credit facility of nearly US$200 million provided by DBS to KrisEnergy.

Under the proposed scheme of arrangement, KrisEnergy will convert all unsecured debt including two tranches of notes - S$130 million 4 per cent (2 per cent cash plus 2 per cent accrued) due 2022 and S$200 million senior bonds due 2023 - into equity. It is also proposing to convert 45 per cent of the secured ZCN into equity and extend the maturity of the remaining to 2025.

Post-restructuring, the two tranches of bonds and the ZCN will be converted into 35 per cent and 57.5 per cent equity respectively in KrisEnergy while its existing shareholders' holdings will be diluted to 7.5 per cent.

If the deal sees the light of day, bondholders are set to endure a painful hair cut with a potential recovery of 4-7 per cent - measly and hard to stomach, they say, versus the ZCN holder, Keppel, which stands to recover 79-92 per cent. These are the potential illustrative recovery rates stated in KrisEnergy's proposal that was presented at the second informal investor meeting on June 19.

Mr Chris Ng said: "We know we have limited legal rights. However, it's very unjust that throughout the process, we have given our support to the company on their promise of a better outcome and yet it resulted in a significantly worse outcome for the bondholders but vast improvement for the shareholders."

KrisEnergy has pitched the scheme as an urgently-needed deleveraging and a better recovery plan to a liquidation as it will allow "equitising creditors" and existing shareholders to enjoy growth and upside in equity value. It also said it has exhausted most other options, including a hunt for a white knight and is eager to forge ahead with its Cambodian project. The company is hoping to secure a consensual restructuring by end of third quarter 2020.

For bondholders - and no doubt, for KrisEnergy too - this is very much deja-vu. In 2016, KrisEnergy drew the ire of bondholders as it sought their forbearance to push back the debt maturity and at a lower coupon rate to buy more time for an action plan to ride the commodity crisis. Bondholders slammed that deal as "inequitable" and had misgivings over taking second place to the new ZCN that was issued, in the event of a default.

While KrisEnergy had made some concessions to the debt revamp, they weren't enough to appease the irate bondholders and, in the end, the plan got the requisite nod of bondholders.

Terence Lin, general manager of iFAST Global Markets, which is representing some individual bond investors said: "As we are just coming out of that restructuring, there is now a lot of unhappiness over the second round. This is a very poor proposal".

He suggested some concessions, such as the company maintaining some debt and not having a complete debt-to-equity swop as well as raising bondholders' post-equity shareholding to a more substantial portion rather than a "really tiny" 35 per cent.

"With the existing proposal, clients are thinking of liquidation as the preferred outcome, although I can't in good conscience advise my clients that this is in their economic interest," he added.

Loss-incurring KrisEnergy has barely recovered from the 2014-2017 oil crash which had hurt liquidity, hampered access to capital markets and crimped its ability to develop the oil assets. In August last year, the court granted its application for a three-month debt moratorium, which has been extended twice to more recently, Aug 27, to give the firm some breathing space to work out a debt revamp that has long seemed elusive. Trading in its shares has also been suspended pending the restructuring.

One market observer said: "Everyone has a case to want more when a company is on the brink of collapse. But the pie is only that much and it's hard to get more when there are many stakeholders."

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