Came across a Straits Time Article about Krisenergy seeking bondholder's consent to accept a new bond and the bondholder's unhappiness. The article is linked here.
Basically KrisEnergy is asking existing bondholders to accept a new bond which is of a 5 year tenure and at a lower interest than the existing bond. In addition, bondholders get to enjoy some increase in interest rate repayment if oil prices move above US$70 during these 5 year period.
In addition, KrisEnergy shareholders (mainly Keppel Corp) will inject $140 mil into the company by subscribing to zero coupon secured notes.
In my opinion, it is highly unlikely for oil to turn around within these 5 years. This is because there is already a production surplus where supply outstrips demand. There are many oil tankers out at sea holding inventory, it will take years for this surplus to be used up.. Furthermore, oil producing nations like Saudi, Iran, Russia are inclined to pump more oil if it goes back to 60+ to cover their budget deficit, given their very low cost of drilling oil. To add to that, we now have a US president who is promising an energy independent policy (more production). We should be planning for a scenario where oil is unlikely to recover past 70 due to such factors.
Hence, I think it is a very bad deal for KrisEnergy bondholders. This is because if they accept the new bond and the zero coupon secured notes offering were to happen, existing bondholders will be pushed further behind in the queue of priority if KrisEnergy's assets are liquidated. This is because senior note holders are ranked ahead of bondholders (unsecured note holders).
Based on Krisenergy's latest balance sheet (3QFy16), if existing bondholders vote "no" and KrisEnergy's oil/gas/exploration assets are liquidated at 50% of stated book value, existing bondholders will be able to get some of their principal. This is likely to be a better scenario than in 2022; where secured note holders get the proceeds first in the event of liquidation.
Disclaimer: The above are only my views and not to be construed as a solicitation or financial advice as I am not a certified financial adviser. Analysis of Krisenergy balance sheet is based on its latest reported financial results released on 3 November 2016. They are not guaranteed as being accurate or reliable as of the time of this posting. Readers should not regard this post as a substitute for the exercise of their own judgment. Any opinions expressed are subject to change without notice and this blog is not under any obligation to update or keep current the information contained. The author accepts no liability whatsoever for any loss or damage of any kind arising out from the use of any or part of this post.
The secured note holders are coming with fresh funds, shouldn't they have the priority as they come out with fresh funds?
If the company goes into liquidation, they have to pay DBS first (US140MM) and there is also a possible chance of not even getting a price for their assets which could be more than 50%/.
Kris Energy has come out with a proposal which means getting help from DBS (bridge loan upsize) and shareholders with fresh funds input of 140MM. This has shown sincerity instead of only seeking help from bondholders.
Recent Rickmers and Swissco has potentially shown that if bondholders does not cooperate, the possibility of the shares going into juidicial management is very strong.