How will Kris Energy's bankruptcy impact Keppel?

The amount of Keppel's enlarged stake in Kris is worth $131m in H1 2019.

Kris Energy’s bankruptcy is unlikely to deal a heavy blow on Keppel Corporation even in a worst-case scenario, according to a report by UOB Kay Hian.

Keppel has invested nearly $400m in the energy firm since its 2013 IPO and holds a 40% stake in the oil and gas firm, which is equivalent to 1.7% of Keppel’s current market cap. The carrying amount of this stake on Keppel’s balance sheet decreased by 64% to $131m as of H1 2019.

“In our view, should a worse-case scenario emerge, we believe that the impact to Keppel Corporation will be minimal as the company’s carrying value for Kris on its balance sheet represents 1.7% of its market cap,” the report read.

UOB attributed Kris’ decline mainly from its weak oil and gas production, which peaked in 2016 at 5.97mmboe and subsequently fell 35% to 3.9mmboe in 2018. This, and partially due to a 34% decline in Brent oil price between 2013 to 2018, dragged down the energy firm’s net cash in 2013 to a net debt/equity of 1678% by end-2018. As a result, Kris’ gross margin as measured by its revenue per barrel of oil equivalent (boe) vs lifting costs has contracted sharply since 2012.

The report noted that it is highly likely that Keppel will make a provision in 2019. In 2018, Keppel made an impairment of $53m for Kris.

Meanwhile, Keppel is currently constructing a $30m production barge for Kris Energy’s Cambodia Block A with delivery set to Q4 2019. However, Keppel has not disclosed how much payment is remaining on this contract given its small size relative to its current orderbook of $5.5b by the end of H1 2019.