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Gulf Keystone’s loan changes look like a “hard sell”, says broker

Last updated: 09:49 24 Mar 2015 GMT, First published: 10:49 24 Mar 2015 GMT

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What ought to have been a straightforward piece of admin is now looking like a hard sell for Gulf Keystone Petroleum (LON:GKP), according to SP Angel analyst Zac Phillips.

Gulf Keystone revealed it is giving its lenders more time to accept an incentivised offer to accept changes to US$250mln of loan notes.

Earlier this month the Kurdistan based oil firm disclosed it was set to breach a technical covenant of the debt, and it was seeking to amend the loan terms with its lenders.

It included an incentive, an ‘early consent fee’, which would pay lenders US$5 for every US$1,000 of the loan principle if they accepted the proposed changes prior to March 23.

This deadline has now been extended to April 1, when the incentivised proposal expires ahead of a vote at a meeting on April 7.

SP Angel’s Zac Phillips says there is no guarantee that the outcome will be favourable for GKP, or its investors, as further ructions could possibly lead to the issue of more equity.

“In what should have been a fairly simple change to the covenants in the notes' deed of trust (the relatively supine book to equity ratio) following an accounting technical revaluation, the fact that the deadline is being extended could be a reflection of the fact that the proposed amendment is starting to look like a hard sell,” he said in a note.

“While the cash flow and ability to pay is the vital factor, the fact that the book to equity value could well be used to apply pressure to the management we believe says more about the state of the relationship between management and the company's funders than it does about the funders' concerns over the company's ability to pay.”

Phillips predicts equity investors are set for an ‘uncomfortable ride’ over the next month regardless of the outcome.

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