KUALA LUMPUR: Kencana Petroleum Bhd has proposed a renounceable rights issue of up to 369.07 million shares, a three-for-10 bonus issue and the provision of financial assistance for its 25%-owned associate Mermaid Kencana Rig 1 Pte Ltd (MKR1) in Singapore.

Kencana said yesterday the rights issue priced at 50 sen per share would be on the basis of two rights shares for every five existing shares at an entitlement date to be determined later.

It said the issue price was a 62% discount from the theoretical ex-all price of its shares of RM1.32, based on the five-day volume-weighted average market price up to Nov 10, 2009 of about RM2.20. It said the price took into account the prevailing market conditions as well as similar recent proposals undertaken in the market.

Kencana said the total gross proceeds of up to RM185 million would be used for capital expenditure, investment opportunities, business expansion, working capital and repayment of bank borrowings. It expects to use up the proceeds within two years.

On the proposed bonus issue, which will follow the rights issue, Kencana said based on the bonus shares of up to 387.52 million, up to RM38.75 million could be capitalised wholly from the share premium account. As at July 31, 2009, its share premium account amounted to RM79.68 million at the company level.

Kencana said the provision of financial assistance to MKR1 stemmed from the collateral to be provided by the Kencana group, including its subsidiary Kencana Petroleum Venture Sdn Bhd (KPV), as part of the conditions of a US$68 million (RM229.8 million) loan facility.

The Kencana group is to guarantee, indemnify or provide collateral for the facility provided that the amount to be secured did not exceed in aggregate US$17 million. Mermaid Maritime Plc owns the remaining 75% of MKR1, which was set up to carry on the business as the owner of tender barges, jackups, submersibles, semi-submersibles, drillships, and platform drilling units in the offshore oil and gas industry worldwide.

MKR1 has appointed another Kencana wholly owned subsidiary Kencana HL Sdn Bhd to build Rig 1 for US$136 million. Rig 1 is intended for charter to exploration and production companies and is expected to be completed in the first quarter of next year.

The parties have also agreed to charter the rig to Kencana Mermaid Drilling Sdn Bhd (KMD), another JV company which is 40% and 60% owned by Mermaid and Kencana, respectively. It will subsequently be chartered to Petronas Carigali Sdn Bhd for five years, with an option for another five years, in the first quarter of next year.

Kencana said half of the building cost were being financed by bank borrowings, while the remaining half via the issuance of 68 million new shares, which was completed on March 31, 2009.

MKR1 had on July 31, 2008 entered into an agreement with several banks, including Nordea Bank Finland Plc (Singapore branch), Bayerische Hypo- und Vereinsbank AG (Singapore branch), and Natixis (Singapore branch) for the US$68 million facility.


This article appeared in The Edge Financial Daily, November 12, 2009.