OREANDA-NEWS. Cosmo Oil Co., Ltd. today announced new financing by means of a subordinated loan.

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.

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.

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.