Tuesday, April 05, 2016/Cardinal Stone Research

Culled——Proshare

Event
Yesterday, Erin Energy Corporation (NYSE MKT: ERN), an independent oil and gas exploration and production company focused on energy resources in sub-Saharan Africa listed on the New York and Johannesburg Stock Exchanges, announced it had obtained a waiver  to the funding requirements of the Debt Service Reserve Account associated with the Zenith Bank Note until December 31, 2016.

The company was also granted a 90-day deferment of the principal payment previously due on March 31, 2016, whilst re-modification discussions of the loan structure continue. The company further stated that it has satisfied the interest obligations due March 31, 2016 and has formally submitted a loan re-modification proposal, which Zenith Bank is currently reviewing with final agreement expected during the second quarter of 2016.

Comment
According to Erin Energy’s annual account, we think the initial exposure to Zenith Bank is about $100 million, net balance as at 31st December was $98.1million, accrued interest was $2.5 million. According to the initial agreement, Erin Energy was expected to pay quarterly principal and interest repayment of $9million.

The first was due 31st March. So the company is seeking a restructuring and possible reduction and/or deferment of interest and principal repayment. The total exposure is just about 1% of Zenith Bank’s total loans as at FY 2015 and 14.5% of the bank’s exposure to the upstream oil and gas sector.

We do not expect this to increase non-performing loans yet as the obligor honoured the first interest repayment due March 31st.  We have contacted Zenith Bank but yet to get details on the proposed terms. Details to follow after obtaining more information from the bank.