Bangalore: India’s largest offshore oil drilling contractor, Aban Offshore Ltd, may have to reschedule some portion of the $3.1 billion, or Rs15,968 crore, of debt that is due to mature this year and the next.
A steep fall in oil prices and the non-usage of some rigs has put pressure on the firm’s ability to repay loans taken from banks including ICICI Bank Ltd, Punjab National Bank (PNB) and Axis Bank Ltd, said analysts.
“It has to get banks to reschedule a part of the loan; there is no other choice,” said a Mumbai-based analyst, who didn’t want to be named because of company policy on speaking with the media. A rescheduling will also help banks to stave off the risk of loans turning sticky, the analyst said.
Plans deferred: KS Energy Services’ jack-up lift ‘Dixie Patriot’. A fall in oil prices has led to a decline in demand for exploration services. Bloomberg
In 2006, when the commodity cycle was humming, Chennai-based Aban acquired Norwegian drilling company Sinvest ASA at an enterprise valuation of $2.2 billion, largely with debt.
The acquisition swelled the firm’s fleet by eight jack-up rigs, which were then in demand as oil explorers stepped up activity ahead of a spurt in oil prices. The firm currently has a fleet of 20 drilling rigs and one floating production unit.
ICICI, PNB and Axis were the majority facilitators for the acquisition, collectively lending nearly $2 billion, said some analysts. Mint could not independently confirm this. ICICI now has a seat on the board of Aban.
C.P. Gopalkrishnan, deputy managing director in charge of investor relations at Aban, was travelling abroad and could not be reached for comment. An email sent at the request of his office remained unanswered.
Bonds worth at least Norwegian Krone 1,000 million (about $207 million) listed in Norway are due for repayment in December.
While no rescheduling of a portion of the loan has taken place yet, it could be a possibility, given the fall in crude prices to less than a third of their July 2008 peak of $147 a barrel, according to an executive at one of the lenders. He did not want to be named.
The Reserve Bank of India (RBI) has allowed banks to reschedule corporate loans following the slowdown. Banks can reschedule all such loans up to two times till June this year except real estate sector loans, which can be rescheduled only once.
The fall in crude prices has ruined the party for the firm that had forecast revenue of Rs4,100 crore for the year to March 2009.
“Our revenues are not on expected lines as oil explorers are deferring their production programme due to the crash in oil prices,” said a company executive on condition of anonymity.
“The fall in oil prices and credit crunch imply a reduction in demand for exploration services and this comes at a time when global supply of jack-up rigs is increasing,” said Navindar M., an investment analyst at Mumbai-based N and S Stockbrokers Pvt. Ltd. About 70 new jack-up rigs are expected to enter the market this year; another 109 such drilling units are under construction at various global shipyards.
“As a result, utilization levels for jack-up rigs and day rates are likely to come under pressure from the peak levels of $180,000 to $200,000 seen a few months earlier,” Navindar added.
The downturn has been biting. Four of Aban’s rigs have not been in use for the past 3-4 months. Further delays in getting contracts for these rigs will add to the pressure on the firm’s revenue. Plus, the fate of five more rig contracts coming up for renewal over the next six months hangs in the balance.
“Its third-quarter performance was subdued as other income (forex gains) of Rs162 crore contributed half of pretax income of Rs302 crore, which may not be the case in future”, said Navindar. At current valuations, significant equity dilution would be needed to repay any meaningful amount of debt, which may be difficult in current market conditions, he added.
What’s more, a slowing global economy and the turning of the commodity cycle means that there are few funding options available.
Anita Bhoir contributed to this story.