Capital

Seplat Plc Completes Debt Restructuring Programme

• Extends RCF maturity to 2022 (Previous: 2018)

• Issues $350 million senior note at 9.25%

• FY’18 interest expense revised slightly lower on cheaper debt pricing

• Refinancing berths liquidity ease, beneficial to SEPLAT project pipeline

Relatively cheaper interest rate on term note issuance
SEPLAT recently announced key milestones in its debt restructuring programme. One, the successful refinancing of its existing (LIBOR + 6%) $300 million Revolving Credit Facility (RCF) due December 2018 ($120 million drawn down as at FY’17) with a new four-year $300 million RCF due June 2022, priced at LIBOR+6%. Two, the issuance of a $350 million senior note due 2023, priced at 9.25%. Upon completion of the refinancing (scheduled for 21 March 2018), SEPLAT’s gross debt will be $550 million. We highlight a couple of positives from the programme.

To start with, whilst the pricing on the new RCF remains unchanged, the 9.25% pricing on the senior note is cheaper than the existing Term loans (priced at LIBOR+8.75%) especially in light of the hawkish global interest rate outlook. Going by the new pricing, we cut our FY’18 interest expense forecast by 12% to $49 million. Meanwhile, with the RCF maturity date now extended to FY’22 (Previous: FY’18), our post-2018 interest expenses are revised higher due to the resulting new streams of payment on the facility. Overall, the refinancing programme presents modest net positive impact on interest expense over the medium term through FY’22.

Liquidity ease valuable to short-to-medium term plans
In our view, SEPLAT appears to benefit more from the liquidity ease that berths with the programme. Ex-refinancing, $265 million of outstanding debt balance should have matured by FY’18. Also, SEPLAT’s debt repayment is now more flexible, stretching up to FY’23 vs the previous FY’21. We see this liquidity ease particularly valuable considering the expansion plans in SEPLAT’s pipeline in the short to medium term, even as SEPLAT is just recuperating from earnings slump in recent years. Our view on the company’s operations remains positive, buoyed by cautiously optimistic outlook on stability in the Niger Delta region, increasing gas volumes and stable oil prices.

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