Gulf Keystone Delays Bond Payments as Oil Drop Hits Finances

(Bloomberg) - Gulf Keystone Petroleum Ltd. will delay about $26 million of bond payments due next week as low oil prices and disruptions in Iraq press its finances.

The company plans to use grace periods for payments on convertible bonds and guaranteed notes due on April 18, it said in a statement on Thursday. Shares of the London-based oil explorer tumbled as much as 36 percent to record-low 4.5 pence.

Gulf Keystone, which operates in the Kurdish region of northern Iraq, also intends to hold talks about fundraising and debt obligations after oil prices plunged about 60 percent in two years. Financial difficulties have been compounded by previously erratic export payments from the Kurdistan Regional Government.

“We are working to achieve the best possible way to restructure our balance sheet,” Gulf Keystone’s Chief Executive Officer Jon Ferrier said in the statement. “Addressing our funding needs will ensure the company’s longer-term future.”

Shaikan Wells

The Shaikan wells in Kurdistan, operated by Gulf Keystone and MOL Hungarian Oil & Gas Plc, need $71 million of investment to maintain current production levels of 40,000 barrels a day, according to the statement. Spending of $88 million is required to raise production to 55,000 barrels.

Payments on $325 million of October 2017 convertible notes can be delayed until May 2, without risk of default. Those on $250 million of guaranteed notes due April 2017 can be postponed until May 3. The convertible notes are quoted at 13 cents on the dollar, while the guaranteed notes are at 49 cents, according to data compiled by Bloomberg.

Gulf Keystone will probably need to restructure the $575 million of bonds due next year, according to Richard Savage, an analyst at Mirabaud Securities LLP. 

“The restructuring will be to a good degree at the expense of equity holders,” he said.

A debt-for-equity swap is the most likely outcome if all parties can agree on terms, according to  Lionel Therond, an analyst at Standard Bank Group Ltd.

There’s a “window of opportunity” for a deal, along with investment in the Shaikan field, to prevent Gulf Keystone from following Afren Plc into bankruptcy, he said. Africa-focused Afren went into administration last year after failing to restructure $863 million of bonds.

Gulf Keystone bondholders including GLG Partners, Sothic Capital Management and Taconic Capital Advisors have hired Houlihan Lokey Inc. to advise them on the potential debt restructuring, people familiar with the matter said in February.

To contact the reporters on this story: Luca Casiraghi in London at lcasiraghi@bloomberg.net ;Angelina Rascouet in London at arascouet1@bloomberg.net To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Abigail Moses, Neil Denslow

Copyright 2016 Bloomberg News.

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