KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
F-61
22.
LONG-TERM LOANS (Continued)
The facility from Arab bank is secured by assigning the rights, title, benefits and interest in the shares of Jannah
Hunt Oil Company Limited to the bank as security. Further, receipts under the crude oil sales agreement with
Exxon Worldwide Trading Company have also been assigned to the bank as security. The loan is repayable in
equal quarterly instalments commencing from March 2014 with final maturity in December 2016. At the year end
the Group failed to comply with a financial covenant within the loan agreement.. Accordingly, the loan has been
classified as a current liability. Subsequent to the year end the Group received an amendment agreement from
Arab Bank (see note 32).
The initial transaction cost of USD 6,455 thousand (2012: USD 7,647 thousand) for securing the loans is
classified as a non-current asset and is being amortised over the period of the loans.
23.
CONVERTIBLE LOANS
2013
2012
USD 000’s
USD 000’s
Non-current portion
105,807
83,213
Current portion
6,744
4,031
112,551
87,244
During 2012, the Group entered into unsecured financing arrangements with Abraaj Capital and Qatar First Bank
for USD 150 million each (total value of USD 300 million). Under the arrangements, the group has drawn down
an amount of USD 100 million, of which USD 83 million was drawn down in 2012 and USD 17 million in the
current year. Of the USD 200 million remaining on the loans USD 50 million has expired and the residual USD
150 million is subject to certain additional conditions precedent. The loans are repayable in three equal
instalments payable at every six month interval starting from 66
th
month from the first draw down date. The loans
carry a coupon interest of 8% and, together with an additional interest uplift of 8% which is payable at conversion
(total effective interest rate of 16%), will be converted into the equity shares of the Company or will be repaid in
cash depending upon exercise of certain conversion or prepayment options by the lenders and the Company. If the
options are not exercised, the outstanding loans, without additional interest, are repaid in cash as per the
repayment schedule.
If the conversion options are exercised, the outstanding loans, together with the additional 8% interest uplift, are
convertible into shares of the Company based on the fair value of the shares on the conversion date. These
embedded options are in the nature of embedded derivatives which have been determined not to be closely related
to the loan arrangements. The group has opted to recognise the convertible loans as financial liabilities at fair
value through the income statement.
The fair value of the total liability as at 31 December 2013 is determined at USD 112,511 thousand (2012: USD
87,244 thousand), of which USD 17,000 thousand represents the initial fair value of additional amounts drawn
down during the year. A loss of USD 15,683 thousand (2012: USD 4,528 thousand) arose during the year for the
change in fair value since the prior period as a result of changes in the forecasted cash flows, out of which USD
7,416 was paid as coupon interest, which is recognised in the income statement in 'fair value loss on convertible
loans'. Of this amount USD 3,612 thousand has been capitalised to qualifying assets in the period, see note 17,
resulting in a net charge to the income statement of USD 12,071 thousand.
The convertible loans are classified as Level 3 in both the years. Level 3 fair value measurements are those
derived from inputs that are not based on observable market data (unobservable inputs). The group uses a
discounted cash flow technique to determine the fair value of the loans. The significant inputs considered in the
valuation are likelihood and timing of an equity offering and the discount rate. The discount rate used was in the
range of 15-17%.
