KUALA LUMPUR (May 21): Perdana Petroleum Bhd's proposed rights issue that was announced last week is a full-fledged solution for its corporate debt restructuring exercise, says executive director Bailey Kho.

Speaking to reporters after the oil and gas offshore marine services group's annual general meeting, Kho said the debt restructuring exercise will help Perdana Petroleum in its turnaround journey concurrent with the improved company outlook this year.

To recap, Perdana Petroleum is involved in a debt restructuring exercise with its 60.48% shareholder Dayang Enterprise Holdings Bhd, which is planning to advance RM365 million to the former, to clear Perdana Petroleum's borrowings that it has guaranteed.

With the latest advances, Perdana Petroleum will owe Dayang RM645.66 million. Perdana Petroleum will then undertake a rights issue of redeemable convertible preference shares (RCPS) for RM506 million, of which RM455 million worth of the RCPS will be issued to Dayang to pare off its debt to the major shareholder.

"On Perdana, there will be interest savings of RM455 million times 6%, [that is] otherwise too heavy for Perdana for a turnaround," said Kho.

Commenting on the rationale of issuing RCPS to pare its debt, Kho said: "If you do a restructuring without converting debt into equity, it is still a debt.

"Like it or not, [even if it owes] Dayang, Dayang still has to charge interest to Perdana. Where does that leave Perdana? The restructuring is not seen as a positive restructuring," said Kho.

"With RCPS, you are not jeopardizing the public spread. RCPS is a better option, so we can stagger the conversion of that equity," Kho said. Recall that the proposed RCPS will have a ten-year tenure and will be convertible to Perdana Petroleum shares on a one-for-one basis.

"Of course [future] dilution [will be] there. It is a trade-off to [reduce] interest charges," said Kho.

The exercise will leave Perdana Petroleum with RM190.66 million owed to Dayang.

Separately, Perdana Petroleum also has some RM178.25 million in borrowings owing to four lenders, which Kho said will be given term-out of two to seven years as part of its debt restructuring exercise.

Perdana Petroleum, said Kho, has been fortunate to have Dayang to provide advances to the group previously.

But he also acknowledged that the process has been a drag to Dayang. "Dayang needed to advance money to Perdana, like it or not. So why not Dayang take over the debt in a responsible manner in exchange for the RCPS?"

Shares of Perdana Petroleum fell 3.5 sen or 10.14% to close at 31 sen, giving it a market capitalisation of RM241.33 million.