SGD New Issue Review : Kris Energy 3Y 6.5%

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Issuer: KrisEnergy Ltd.
Structure:  Fixed Rate Senior Unsecured Notes
Issuer Rating: Unrated
Issue Rating: Unrated
Format: Regulation S; Singapore (Sections 274 and 275 of the                     Securities and Futures Act (Cap. 289)); Issuance off SGD 500 Million Multicurrency Medium Term Note Programme
Tenor: 3 years
Issue Size:SGD [100] Million
Initial Guidance:    6.5% area
Change of Control:   Change of Control put at 101% (if any holder besides First Reserve and Keppel controls more than 30% of KrisEnergy’s issued share capital)
Financial covenants:
– Consolidated Total Debt / Consolidated Equity ≤ 1.0x
– Consolidated EBITDAX / Consolidated Interest Expense ≥ 1.5x until 31 Dec 2015, and ≥ 3.0x thereafter
– Consolidated Tangible Net Worth ≥ USD 200 million
– Consolidated Sec’d Debt / Consolidated Total Assts ≤0.4
– Minimum Cash within the Group not less than USD15MM
Use of Proceeds:     In accordance with the Programme
Payment: Semi-annual, actual/365 (fixed)
Listing/Law/Clear:   SGX-ST/Singapore Law/CDP
Denoms: SGD250k

Not sure if anyone remember they used to raise money at 10.5% ? for their 3Y callable bond back in 2011. That bond was called in Jan this year, 6 months after their IPO at $1.10 in Jul last year (trading at $0.74 last).

Then the bankers went a calling and signed them up for a new SGD 500 mio borrowing programme just last week and here they are borrowing immediately.

Sellable bond because of Keppel Corp’s 31.4% shareholding. Between the 2 top holders, First Reserve (venture capital) and Keppel Corp, they own 76% of the company that specialises mainly in upstream exploration work that depends mainly on their superb sense of oil detection.

Why is the coupon only 6.5% when they are running -137 USD mio in retained earnings and have only turned in small operating profits in 2012 and 2013 ?

kris energy income graph

Because the banks are going to sell that Keppel Corp ownership angle.

I am no expert on oil exploration companies except we know that it is a sort of gamble and there are few comparable purely exploration companies around because the rest of them usually get involved in the development and production work as well.

The coupon should be higher to reflect the underlying risk, in my opinion. In addition to the VC ownership angle and their fondness for cashing out after an IPO.  This strangely worded change of control clause cannot stop them from selling if they really wanted to.

With the help of a friend who comes from a oil expert bank, we dug out Salamander Energy Plc, the closest comparable that operates in S E Asia, with roughly same market cap as Kris.

They have highly erratic earnings since 2006 (more downs than ups), stock price not doing so well and they have 1 outstanding bond in USD.

Details :
Salamder Energy PLC
Maturity 6 Jan 2020
Callable 30 Dec 2016
Call Price 104.88
Current Price (unverified) 99.875/100.375
Current Yield (mid) 9.72% to 01/2020

I guess the 6.5% for Kris Energy just purely reflects the Keppel Corp relationship and with Olam fresh on everyone’s minds, this issue will sadly be a sell out.