Last week we learned that the successor to Petrotrin, the State-owned Trinidad Petroleum Holdings Limited (TPHL), plans to borrow US$720 million from a syndicate of banks led by Credit Suisse, Cayman Islands. This loan is being taken to pay bondholders holding “2019 notes” who are due to be paid in August 2019. The term “2019 notes” refers to a 2009 Petrotrin bond. The Minister of Finance quickly took to Twitter to congratulate TPHL for securing the financing without a Government guarantee.
However, the effort by TPHL to refinance two Petrotrin bonds (2007 and 2009) by way of an exchange offer for existing “2019 notes” and “2022 notes”, was poorly received by bondholders. TPHL was only able to get US$130 million (15.3 per cent) of the total US$850 million liability rolled over into a new bond maturing in 2026. This means bondholders holding the remaining US$720 million worth of “2019 notes” refused TPHL’s offer which included, among other things, a handsome interest rate of 9.75 per cent for a new bond maturing in 2026 and other sweeteners. Hence the need for a US$720 million bank loan to pay off the balance of the US$850 million. That is the side of the story the country is not hearing.
The Minister of Finance, in response to queries in Parliament on May 24 on this matter said, “the people at Heritage and Trinidad Petroleum have met their target”. He went on to add he didn’t want to “rain on their parade”. That same day, it was announced that the deadline for bondholders to accept TPHL’s offer was extended for a third time.
Given the potential impact on the national economy there are questions to be answered.
1. What are the “conditions precedent” for this US$720 million loan?
2. What are the terms of the loan with the syndicate of banks led by Credit Suisse, Cayman Islands?
3. Why would bondholders holding US$720 million worth of “2019 notes” refuse to accept refinancing with a 9.75 per cent interest rate and an additional sweetener of US$10 on every US$1,000 of debt?
4. What are the consequences of using the assets of Heritage Petroleum Ltd, Paria Fuel Trading Ltd and Guaracara Refining Ltd to guarantee this loan?
5. Are the petroleum reserves vested with Heritage Petroleum Ltd being used as part of the guarantee of the loan?
6. How will this US$720 million loan affect the future financing of the operations of these companies? How does this loan impact on efforts to get a buyer for the Pointe-a-Pierre refinery and possibly Paria Fuel Trading Ltd?
In an investor update for May 2019, JMMB noted that “TPHL had not provided audited financial statements for 2018. Therefore, we cannot really substantiate the accuracy and robustness of unaudited managerial accounts and/or projections to inform our opinion on a corporate. In the absence of audited financials for the subsidiaries and/ or parent, TPHL, we used audited financial statements as at the end of 2017 for Petrotrin. We are in the dark as to whether there have been substantial material changes to TPHL’s financial operation”. JMMB concluded that they advised their clients not to take up the offer due to “macro-fiscal situation”. Where are the audited financials for Petrotrin for its 2018 financial year that ended on September 30, 2018?
It is critical that the T&T public be aware of what is happening with the assets of the former Petrotrin and the significant amount of debt against which these national assets will be pledged.
The situation is all the more worrying considering that Petrotrin/Heritage’s core production has fallen by 23 per cent in the period March 2018 to February 2019. We are also in the midst of another plunge in oil prices. Such a situation will seriously erode Heritage Petroleum’s revenue. In its April 16, 2019 rating report on TPHL, Moody’s assigned a rating Ba3 (stable) or junk status.
TPHL can only dig itself out of this hole by Heritage Petroleum rapidly increasing oil production. Unfortunately, decisions by the former board of Petrotrin to cancel projects that would have increased oil production at Trinmar are now haunting Heritage Petroleum.
Drilling programmes require cash and given that there has been no drilling in Trinmar since April 2016 and considering that a lot of the institutional memory of Petrotrin has been sent home—this is not going to be easy.
Last month we learned that the Government provided Petrotrin with TT$709 million to help settle termination benefits with employees. That money was taken from the country’s Infrastructure Development Fund. It seems the Petrotrin candle will end up costing more than the funeral.
• Kevin Ramnarine is
a former energy minister