Bangalore: India’s biggest offshore oil drilling rig contractor, Aban Offshore Ltd, may be close to refinancing part of its debt of $3.2 billion (Rs15,264 crore) due this year, which could help it avert a possible bankruptcy.
Falling demand: An Oil Natural Gas Corp. oil drilling facility. Day rates for jack-up rigs are currently ruling at about $110,000. Bloomberg
“Aban Offshore is close to raising a fresh loan to repay some outstanding debt falling due this year,” said a person familiar with the development, without elaborating. He didn’t want to be named.
Mint could not independently confirm the development. The office of C.P. Gopalkrishnan, Aban’s deputy managing director looking after investor relations, said he was travelling and would not be back in India until 1 June. S. Srinivasan, vice-president, corporate planning, also could not be reached for comments.
On Tuesday, Aban shares climbed 21% to end at Rs907.50 on the Bombay Stock Exchange, it’s highest closing level this year. On Wednesday, the shares dropped nearly 4% to close at Rs874.65, after reaching a high of Rs976 in intraday trading.
Aban needs to repay Rs2,360 crore of its debt by 31 March. This includes $160 million worth of bonds listed in Norway coming up for repayment in December.
The firm could face bankruptcy under Norwegian law if it is unable to repay the bonds, the person said.
Aban will have to raise a fresh loan of at least Rs1,240 crore this year to repay debt, assuming it earns Rs1,118 crore this year from operating its rigs, according to Kotak Institutional Equities Research, a unit of Kotak Mahindra Bank Ltd.
In 2006, Chennai-based Aban acquired Norwegian drilling company Sinvest ASA at an enterprise value of $2.2 billion with the help of huge debt, when the commodity cycle was booming.
The acquisition swelled the firm’s fleet by eight jack-up rigs used in offshore oil drilling, much in demand then as explorers stepped up activity on rising prices.
The firm owns 20 drilling rigs and one floating production unit.
Since then, a crash in oil prices and seven of Aban’s rigs lying idle have hurt the company’s ability to repay loans.
Oil explorers are deferring production plans due to declining crude prices.
The price for the benchmark Brent crude has plunged to about $59 a barrel from an all-time high of $145.66 a barrel on 3 July.
“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 Natson Securities Pvt. Ltd.
About 70 new jack-up rigs are expected to enter the market this year looking for employment, out of the 179 units 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 $180,000-200,000 seen a few months earlier,” Navindar said.
Currently, day rates for jack-up rigs are about $110,000.
“Aban is the most expensive offshore drilling stock with the most risky balance sheet,” Kotak Institutional Equities Research said in a recent report. “We do not see any major improvement in global rig demand to justify the spurt in share price of Aban.”
Even if the debt is refinanced, it will continue to remain on the company’s books, thus leaving valuations unaffected, Kotak said.