A Niko Resources operation in Bangladesh. In 2011, an RCMP bribery case against Niko Resources led to a $9.5-million fine against the Calgary company.
A group of institutional investors has agreed to lend Niko Resources Ltd. $60-million (U.S.) in a complex deal that looks pricey but gives some breathing room as the junior oil explorer looks to meet exploration commitments.
Uncertainty over financing of future international prospects has clouded fortunes for Niko as production has declined in its operations offshore India, reducing cash flow.
The unnamed investors will garner 7 per cent annually on their money, and one of their companies gets an option to gain 5 per cent interests in two Indonesian exploration blocks.
Actual proceeds to Niko, though, will be $52.5-million "after deducting the original issue discount and the estimated related expenses payable by Niko."
Niko subsidiaries that have stakes in the company's marquee D6 block in India are guaranteeing the loan on an unsecured basis. It will be secured by pledges of shares in Niko units that have stakes in another Indian block and two in Indonesia.
William Hornaday, the company's chief operating officer, declined to name the investors behind the loan.
FirstEnergy Capital Corp. analyst Darren Engels said funding remains an issue for Niko, whose shares have tumbled from more than $110 in 2010 to $8.64 on the Toronto Stock Exchange on Friday. They have come back 40 per cent in the past two months, however, after the company said it increased proved reserves by 160 per cent and that the Indian government approved a new formula that will double the price of gas from D6 starting next year.
The loan follows a $63.5-million private placement of 7 per cent senior unsecured notes announced a month ago.
Mr. Engels pointed out that the company's management had said they expected an increase to its credit line following recent word of the reserve increase and higher price for natural gas produced at the D6 field, which is operated by India's Reliance Industries.
A lingering question is the status of two asset sales worth a total of $157-million, which it disclosed in March. Those were supposed to have closed this spring, Mr. Engels said.
"We're way past that now, and now they've done two debt deals in the last few weeks. Those asset deals must be further down the road," he said. He added that he did not know who was behind the latest loan.
Mr. Hornaday said the company was still working on closing the deals, and that the debt would help bridge the gap until that happens and when the new gas price kicks in, which will mean a "step change" in cash flow.
(Jeffrey Jones is a Globe and Mail Business Reporter.)
Return to Streetwise home page.
The Globe has launched a Streetwise and ROB Insight newsletter, with content available exclusively to subscribers of Globe Unlimited. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page.
Jeffrey Jones