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Press Release

Notice of Financing by means of Subordinated Loan

March 24, 2015
Cosmo Oil Co., Ltd.
Corporate Communications Dept.
Public Relations Office

The Company today announced new financing by means of a subordinated loan.

1. Background

The business environment surrounding our corporate group is being significantly affected by factors such as, volatile crude oil prices, declining domestic petroleum demand, and growing implementation of renewable energy. Losses from inventory valuation adjustment caused by the sharp decline in crude oil prices will likely result in a deep reduction of the corporate group’s shareholders’ equity. Despite the foresaid, the Company’s earnings excluding the inventory valuation is performing well, and in order to achieve the target set on the “5th Consolidated Medium Term Management Plan”, the Company has decided to finance by means of a subordinated loan.

2. Purposes

The corporate group is taking all steps to achieve the targets of the “5th Consolidated Medium Term Management Plan” and is planning to reduce interest-bearing debt by 150 billion yen this year. The subordinated loan is expected to further improve and strengthen the Company’s balance sheet.
Loan proceeds will be allocated towards business operations, and also to repay interest-bearing debt, in order to boost enterprise value through earnings growth and a stronger balance sheet.
This loan will be partly interpreted by Japan Credit Rating Agency Ltd. as having equity value, meaning that the Company can, in essence, strengthen the balance sheet without diluting existing shares. In addition, this loan was actualized because the financial institutions had a strong understanding of the Company’s business and its potential future.

3. Loan Characteristics

The unique aspect of this loan is that, despite this being a loan, it is situated in between a loan and equity attributed to reasons such as; (1) having the option to extend interest payments, (2) super long repayment period, and (3) subordination upon liquidation of company, etc. Therefore, the Japan Credit Rating Agency Ltd. will interpret 50% of the financed amount as having equity value. This loan is not convertible to any equity shares, and as such there is no share dilution.

4. Overview of Loan Terms

(1) Financing Amount 60 billion yen
(2) Execution Date March 30, 2015
(3) Disbursement Date April 1, 2015
(4) Final Repayment Date March 31, 2075
The Company has the option to partially or wholly repay the loan at each interest payment date on or after March 31, 2020. In addition, the Company may partially or wholly repay the loan if any of the following occur: (i) the Company becomes subject to extremely unfavorable tax implications which cannot be reasonably solved, (ii) the credit rating agency announces a reduction on the interpreted amount of this loan having partial equity value, (iii) the Company agrees with all lenders and agents listed on (11).
(5) Replacement Article If the Company decides to repay the loan prior to the final repayment date, the Company shall do so, subject to issuing new shares and/or obtaining a loan with similar terms at least 6 months before the early repayment date.
(6) Interest Rate The variable interest rate will be based on 6-month EuroYen LIBOR for the period from April 1, 2015 to and excluding March 31, 2020. The variable interest will increase by another 1.00% for subsequent periods from March 31, 2020 onwards.
(7) Interest Payment Date The first payment date will be on September 30, 2015. Each subsequent payment will be made on March 31 and September 30 of each year until March 31, 2075.
(8) Interest Restriction Interest payable on the Subordinated Loan may be deferred whether partially or wholly at discretion of the Company.
(9) Subordinated Clause If a decision to commence liquidation proceedings, bankruptcy proceedings, corporate reorganization proceedings, or civil rehabilitation proceedings has been made, lenders of this subordinated loan may only receive repayment after the full amount of all credits excluding subordinated obligations are paid.
This loan will not cause any disadvantage to any existing lenders of non-subordinated loans.
(10) Interpretation of this Loan towards equity value by Rating Agency Japan Credit Rating Agency, Ltd. : Equity value “Middle”・50 (TBD)
(11) Investor of this Loan (Lender) (TBD) Mizuho Bank, Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Sumitomo Mitsui Banking Corporation
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