Bondholders Take Control of GKP in $500m Restructuring

By John Lee.

Gulf Keystone Petroleum (GKP) announced this morning that $500 million worth of company bonds are to be converted into equity, diluting current shareholders to a stake of just 5 percent of the company.

The company’s shares fell another 40 percent in early trading, and a new Chairman, Keith Lough, has been appointed to replace Andrew Simon.

Having struggled with cash flow in recent times due to lower oil prices and what it describes as “adverse geopolitical developments“, GKP declared two weeks ago that it was in default on its debt obligations.

Commenting on today’s announcement, Andrew Simon, outgoing Chairman said:

Our Shareholders, and those of the other Kurdistan focused operators, have suffered significant value destruction over recent months, as a result of the low oil price and extraordinary regional geo-politics.  For us this has been further compounded by a debt burden of over US$600 million repayable next year. To address the liquidity and significant leverage situation faced by the Company, we have to restructure the balance sheet now.

A new and strengthened management team and Board have been working tirelessly for the benefit of all stakeholders, to ensure GKP’s survival.  Following months of negotiation, and in the absence of deliverable alternatives, the Board believes the proposed restructuring offers the best possible outcome for all.

Jón Ferrier, CEO, said:

Without the restructuring and the improved liquidity delivered by the transaction, the Company cannot avoid insolvency or capture the significant future potential of the Shaikan field. 

In my view this is the best possible transaction for existing stakeholders in these very challenging circumstances, and I urge stakeholders to support it. For the Shareholders who are able, the opportunity exists to partly offset the dilution of the necessary debt equitisation and capture any future increase in equity value by participating in the open offer.  We acknowledge the cooperation of our significant Guaranteed Noteholders and Convertible Bondholders, and are grateful for the continued support of our current largest Shareholders, Capital. 

With the support of the MNR, which has established a pattern of payments, and with a stabilising oil price environment and sustainable debt levels, we have the foundations of a strong future equity story for a restructured GKP to develop the Shaikan field and unlock its potential as one of the most significant assets in Kurdistan.

Without a successful consensual restructuring, Shareholders and Convertible Bondholders have no realistic chance of preserving current value or participating in future value.

Full details of the proposed restructuring can be viewed here.

(Sources: GKP, Yahoo!)

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