(Sept 23): Like many oil and gas companies, KrisEnergy has been severely affected by the prolonged slump in oil prices over the past five years. Both exploration and production have become riskier undertakings. The company, which has been in the red since its 2013 IPO, now faces insolvency.
Through a restructuring process in 2016 — supported by its largest shareholder, Temasek-linked Keppel Corp — the company was able to reschedule its borrowings and avoid going bust. Three years on, unable to execute a turnaround, KrisEnergy is about to embark on another restructuring process, casting doubts on its ability to continue as a going concern.
On Sept 9, KrisEnergy obtained a threemonth debt moratorium from the court — half the duration it had requested on Aug 14. Up until Nov 14, the company will be protected from any enforcement actions and legal proceedings launched by creditors. KrisEnergy says the moratorium will provide “breathing space and room” to restructure its liabilities in an “equitable” manner for all stakeholders and return it to “viability in the shortest time possible”.
In an informal meeting organised by the Securities Investors Association (Singapore) on Sept 10, KrisEnergy explained its plans to stakeholders. They included holders of $130 million senior unsecured notes due 2022, $200 million senior unsecured notes due 2023, senior secured zero-coupon notes due 2024 ($139.5 million in principal amount) and ordinary shareholders. In total, 114 investors were present at the meeting, according to a KrisEnergy spokesperson.
At the meeting, KrisEnergy said a process was underway to divest certain assets. It added that it had so far received multiple non-binding offers for “assets, combinations of assets and a corporate transaction”. “The company is working expeditiously to advance the sales process, following which a comprehensive restructuring plan will be announced,” the spokesperson tells The Edge Singapore.
Still, not everyone was happy at the meeting. A group of KrisEnergy retail bondholders of the 2023 and 2024 notes told The Edge Singapore and another media publication on Sept 16 that under the new restructuring process, they may receive the short end of the stick again. They claimed that the information provided at the informal investors’ meeting lacked certain details and that answers in response to queries during and after the meeting were not forthcoming and satisfactory.
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Thus, the group of bondholders is inviting other retail bondholders to join them and defend their interests together in the light of a potential new restructuring exercise. Their aim is to gather fellow bond investors, who collectively hold 25% of the bonds. They estimate that they have around 11% now. The bondholder group plans to form a steering committee and elect a representative to ensure that their views are heard and taken into account by KrisEnergy during the restructuring process.
So far, efforts to recruit other retail bondholders have been slow. One of the bondholders, Lee, says he has been trying to connect with other retail bondholders through his relationship manager, but to no avail. He explains that his relationship manager at UOB Bank, which sold the bonds, refused to share customers’ contact details because of regulations on personal data protection.
Another bondholder, Woon, says to get get around the regulations, she asked her relationship manager to give her contact information to other customers and invite them to join the bondholder group. Her relationship manager refused to do so.
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Failure of first restructuring plan
During KrisEnergy’s first restructuring exercise, the company successfully persuaded bondholders to exchange their $130 million 6.25% notes due 2017 and $200 million 5.75% notes due 2018 for new, senior unsecured notes. The maturity dates of the new notes were extended by five years from the previous notes’ maturity dates. The new notes have a fixed interest rate of 4% a year, comprising 2% in cash and 2% in relation to which the company retains the discretion to pay in cash or to accrue to the principal amount.
KrisEnergy’s revolving credit facility (RCF) was also transferred to a single lender, DBS Bank, and increased to US$148.27 million. The bank also made available a US$50 million bridge upsize to the company. The company’s cross-currency swaps were terminated, allowing it to enter into unsecured term loan agreements amounting to US$34.4 million with The Hongkong and Shanghai Banking Corp and Standard Chartered Bank as settlement of the early termination. In addition, the company issued secured zero-coupon notes due 2024 with free detachable warrants, which were subscribed for by Keppel Corp, KrisEnergy’s largest shareholder.
Despite the restructuring exercise, cost-cutting measures and a new business plan, KrisEnergy struggled to make coupon payments and pare down debt. As at June 30, it had total borrowings of US$476.7 million, comprising the 2022 notes of US$77.1 million, 2023 notes of US$118.3 million, 2024 notes of US$69.5 million, a revolving credit facility of US$177.4 million and HSBC/Standard Chartered Bank loan of US$34.4 million. As a result, the company’s gearing level stood at 110.8%. It has cash and bank balances of US$51.7 million ($71.2 million).
Woon says retail bondholders never agreed to the “haircut” of the 2023 and 2024 notes during the 2016 restructuring, but were forced to agree, given their minority status. She says she would have preferred that the company liquidated its assets and returned the proceeds to the stakeholders. But now, “there may be nothing left for us”, she laments.
A third bondholder, Mui Sin, says she is worried that minority bondholders like her will get sidelined again. This is because they have lost their secured status and are now forced to stand in line behind the large creditors, namely the three banks and Keppel Corp. “I’m kind of worried that we get so oppressed,” she says.
The retail bondholders are also worried that, besides themselves, there might be other institutional bondholders in the same tranches as they are. “We don’t have the list [of all the noteholders]. How do I know that [perhaps] another Temasek-linked company is a holder of the bonds?” says Woon.
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She wants KrisEnergy to disclose the details of the second restructuring plan as soon as possible. The risk is that retail bondholders will be let in on the plan too late to make an informed decision. “We want them to be transparent with us — what they are discussing with shareholders, senior lenders and other unsecured lenders. This is so that we can get ourselves prepared and not be on the losing end,” she says.
According to Mui Sin, questions posted on the online Q&A platform Pigeonhole during the informal investor meeting were not addressed at all. Nor were the questions put up on the screen. Moreover, questions from the floor were not answered satisfactorily. In particular, she recalls that one person asked why the company chose not to liquidate itself when the break-even point was so high.
KrisEnergy CEO Kelvin Tang, who responded to the question, got “a bit emotional”, she recalls. This led a company consultant to chime in, saying it could not divulge details because of commercial and competitive reasons, she adds.
In response to queries by The Edge Singapore, the KrisEnergy spokesperson says the company has yet to be in a position to provide details of the terms for each investor class. The spokesperson gave the assurance that all investors’ questions will be handled promptly and to the best of the company’s ability.
“We are not, however, able to provide financial advice to investors and urge all investors to consult with their banks, financial advisers, lawyers and other suitable professionals. All investors have been informed that the company intends to communicate with all stakeholders as developments occur and it has also planned for further investor meetings at the appropriate time. All information regarding the moratorium and restructuring exercise is uploaded to SGXNet and the company’s website, where a dedicated Restructuring Information Centre has been established,” the spokesperson says.
The reality
Not surprisingly, KrisEnergy’s most recent results have been disappointing. For 1HFY2019 ended June 30, the company reported a 22% y-o-y decline in revenue to US$68.6 million, as both production volume and average selling prices dropped. As a result, its net loss widened to US$69.5 million from US$51.3 million previously. Shares in KrisEnergy have fallen 98% from its all-time high of $1.2777 in late 2013 to three cents. Trading of the stock has been suspended since Aug 14.
KrisEnergy has 12 oil and gas assets in Bangladesh, Cambodia, Indonesia, Thailand and Vietnam. Only three are producing assets, of which two are operated by the company. Three other assets are at the development stage. The remaining six are at the exploration and appraisal stages.
The recent gain in crude oil prices — which has since evaporated — is unlikely to provide a boost to KrisEnergy. Saudi Arabia’s production facilities, which were hit by a drone attack on Sept 14, have recovered more than half of the production they lost. “This suggests that Saturday’s attacks should only have a limited impact on production and exports, a smaller shock than feared by Monday’s media reports,” says a Sept 18 note by OCBC Investment Research. The Brent and West Texas Intermediate crudes were trading at US$58 to US$64 a barrel on Sept 19.
Indeed, having a bigger group of retail bondholders may nudge KrisEnergy to pay more attention to their plight. But the retail bondholders are also aware that their cause may be more about regaining their pride than recouping their investments. The oil industry, weighed down by a combination of a slowing economy and active substitution using renewable sources, will struggle to regain its former glory.
“The reality [for us retail bondholders] is not very good. We can more or less forget about getting back our principal,” says Mark, another bondholder. The group’s immediate priority is to get representation in the steering committee so that, if the company is broken up and sold, they can salvage something. “We were suckers once. Let’s not be suckers twice,” adds Mark.
