Niko calls off stake sale in RIL's KG-D6 block

Financially strained Niko Resources of Canada has called off its 10 per cent stake sale in Reliance Industries' KG-D6 block apparently because it could not find a buyer.
Niko had in February announced plans to sell its 10 per cent stake in the KG-D6 block to pay off USD 340 million debt. It had planned to sell off the interest by April 30 but later extended it first to May 31 and then to September 15.
"The company is no longer focused on the sale of its interest in the D6 Block or the company in the near term, and is now pursuing a strategic plan to maintain the company's core assets until the value of these assets can be enhanced for the benefit of the company's stakeholders," Niko said in a statement.

Niko blamed its inability to pay debt obligations on the Indian government's new natural gas policy set last year which did not raise prices as much as expected when it entered into a term loan facilities agreement with its senior lenders in December 2013.
"The lower than expected gas price for D6 gas sales contributed to the company's inability to meet its financial covenants under its term loan facilities in fiscal 2015," it said.
The government had in October announced raising natural gas price to USD 5.61 per million British thermal unit from USD 4.2. The increase was lower than USD 8.4 that the industry was expecting and prevailing USD 5.71 rate applicable to gas from western offshore fields.

While the higher gas price is applicable uniformly across fields, Dhirubhai-1 and 3 (D1&D3) gas fields in KG-D6 block will get the old rate of USD 4.2 till it is legally settled if the output falling by over 80 per cent to about 8 million standard cubic meters per day was due to natural reasons or was a deliberate ploy.

RIL and partners will get the incremental difference only if they can prove that fall in output was not deliberate.
"In fiscal 2015, after three deferrals, the Government of India approved a new domestic gas pricing policy for India that increased the price for gas sales from the D6 Block, but the formula in the new policy guidelines resulted in prices that are significantly lower than had been expected when the company entered into a term loan facilities agreement with its senior lenders in December 2013," Niko said.

RIL is the operator of the block with 60 per cent interest while 30 per cent is with BP plc of UK.
Niko warned it failed to make interest payments to noteholders as required on June 30 and is therefore in default, leaving it vulnerable to a demand for accelerated repayment.
Niko chairman and interim chief executive Kevin Clarke said the company had sufficient liquidity to fund its operating subsidiaries in India and Bangladesh, as well as general and administrative expenses "for the foreseeable future", provided that it wins concessions from its key stakeholders to reduce cash outflows.