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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2016
38
22.
CONVERTIBLE LOANS
30 June
31 December
2016
2015
Audited
Audited
US$ 000’s
US$ 000’s
Non-current portion
119,881
117,329
Current portion
2,026
2,071
121,907
119,400
Movement in convertible loan
30 June
31 December
2016
2015
Audited
Audited
US$ 000’s
US$ 000’s
As at 1 January
119,400
117,829
Change in fair value*
7,675
10,974
Payment
(5,168)
(9,403)
As end of the period
121,907
119,400
*Of this amount US$ 0.4 million (31 December 2015: US$ 1.7 million) has been capitalised to qualifying assets in the period, see note 13, resulting in
a net charge to the income statement of US$ 7.3 million (31 December 2015: US$ 9.3 million).
During 2012, the Group entered into unsecured financing arrangements with Abraaj Capital and Qatar First Bank for
US$ 150 million each (total value of US$ 300 million). Under the arrangements, the group has drawn down an amount
of US$ 100 million, of which US$ 83 million was drawn down in 2012 and US$ 17 million was drawn down in 2013.
There is no remaining availability to draw down additional amounts. The loans are repayable in three equal instalments
payable at six month intervals starting from the 66th month from the first draw down date.
A variety of conversion options exist including: if the Group undertakes a public offering of shares raising at least
US$ 150 million of equity, there is mandatory conversion; if no such public offering has occurred by the 36 month
following the first draw down of each loan, the Company has the option for early repayment together with a
prepayment premium.
The loans carry a coupon interest of 8%-10.5%, and if there is no conversion, the outstanding loans, without additional
interest, are repaid in cash as per the repayment schedule.
Should a conversion option be exercised, the outstanding loans and an additional interest uplift will be converted into
equity shares of the Company based on the fair value of the shares on the conversion date. The additional interest
uplift is 8% if conversion is within 36 months of the first draw down and 10% if conversion is after this time.
These options are considered to be 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 based on the Company’s best estimate at the balance sheet date of relevant likelihood of the
occurrence of each conversion or prepayment option. The possibility of prepayment option is based on the ongoing
discussions with potential investors and lenders for refinancing of convertible loans. The fair value, therefore
represents the Company’s best estimate of the discounted future cash flows payable for these loans. The change in fair
value since the prior period arises as a result of changes in the forecasted cash flows.
The convertible loans are classified as Level 3 in the fair value hierarchy in all the periods presented. 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 or prepayment and the discount rate. The discount rate
used was in the range of 10-18%. Changing the likelihood and timing assumptions in the fair value measurement could
have a maximum impact of increasing the liability by US$ 23.4 million or reducing the liability by US$ 17.9 million.