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Oil and gas company KrisEnergy enlists Standard Bank for Southeast Asia acquisition, writes Michael Turner.

Singapore-based upstream oil and gas company KrisEnergy has recruited Standard Bank to finance a US$150mn facility for Southeast Asian acquisitions.

The deal, which has an 18-month maturity and the option to extend by a further half year, has already provided two loan packages totalling US$78mn for the acquisition of offshore oil and gas facilities in Thailand and Indonesia.

GTR speaks to Peter Heintzelman, director, oil and gas at Standard Bank about what makes this deal special: “It’s an innovative deal, doing a somewhat blind acquisition finance structure in oil and gas is fairly unheard of. We’re pleased to have achieved an innovative structure like this, particularly with a KrisEnergy team that’s so strong, and we’re looking forward to similar deals in countries such as Cambodia, where KrisEnergy has an asset. There’s not many banks going into Cambodia, but we recently did a US$400mn deal there in another industry, so we’re definitely at the forefront of Cambodian transactions as well.”

With the unusual structure of the deal and the various issues that come with emerging market commodity finance, an important factor in securing loans comes from having strong, established relationships to do business, as Heintzelman remarks: “The impetus behind the transaction was really for KrisEnergy to build a war chest to go and complete acquisitions. We were happy to be a part of the deal given the relationship that we already had with the management team.

“Standard Bank has known the three principals and the chief financial officer of KrisEnergy for a long time now. Having a mutual, trusting relationship with the team certainly gives an advantage over the competition, that’s for sure. It makes it easier when you have a proven management team of the calibre of KrisEnergy.”

Having a well-established relationship with the clients was a factor that led to Standard Bank confidently approaching this deal with more appetite than other banks may have shown, as Heintzelman continues: “The deal is an aggressive deal, not in regards to risk – although some banks might say it is, but it’s aggressive in the way the deal is constructed as a blind-pool acquisition finance facility (a form of limited partnership which doesn’t specify what investment opportunities the general partner wants to pursue), and it makes our job a lot easier getting things approved when you know the team you’re working with is so strong. They submitted two assets and we funded two assets, so it’s been very successful so far and we’re very pleased, as are the KrisEnergy team.

“Everyone has to be comfortable with the government and the people you’re financing, and in these cases we have both. Emerging markets work for us, because we don’t try to be all things to all people, instead we’re good in the emerging markets where we operate and we try to be the best in oil, gas and the sectors where we are specialists.”

Richard Lorentz, director business development at KrisEnergy, echoes Heintzelman’s views: “The founders of KrisEnergy have a very strong relationship and track record under our belt with Standard Bank. In one day we did our draw downs, finalised the acquisition of the deal and, with the exception of some small hiccups in wire transfers and similar things out of our control, it went very well.”
Of the two new acquisitions in Thailand and Indonesia, the Thai offshore project was the most recently signed, and came soon after the first two deaths in the country as a result of political protests, as Lorentz tells GTR: “We finalised all documentation in early to mid-January and sadly, the first deaths occurred about two days before the draw down.”

While political unrest continues to be a pervasive issue in Thailand, neither KrisEnergy nor Standard Bank are unduly concerned that the problems in the country will affect the project, as Standard Bank’s Heintzelman, explains to GTR: “The deal was signed before the problems in Thailand started in earnest, but we didn’t fund until after the problems began. The problems have not been a big constraint, though, because in the oil and gas business, the commodity is usually found in areas of the world where country risk and the type of government can vary dramatically.

“However, in countries where there is a lower-quality country risk, quite often the problems are mitigated by other factors such as offshore structures, having a quality, international off-taker, and collection accounts located offshore, among others. Once you have many of these mitigating offshore factors, in addition to the fact that the country is highly dependent on the oil industry and therefore quite respectful of it, you can actually consider quite a lot of the risk mitigated.”

He continues: “More often than not, oil and gas comes from countries with higher risk. In this case though, the asset is a long way from Bangkok, and the asset is offshore, so there’s no physical risk. It’s purely political risk. Whatever government is in place, even if there is the worst-case scenario of a military coup or something similar, the asset and the transaction contribute significantly to the country’s economy and any government would recognise that.” GTR