Petrofac is under increasing pressure after it announced that it would miss the next bond payment, and delayed its release of annual results.
The shares of the oilfield service group, which has been struggling with cashflow, plunged sharply. They closed down 34.1%, or 7 1/2p at a new record low price of 14 3/4p after the company announced that it would not be able to pay its next bond, due on May 15th.
A group of bondholders, representing approximately 41 per cent, said that they would wait until the end June to take action, as Petrofac tries to restructure the debt and sell off non-core assets.
The Jersey-based firm, which was at its peak a FTSE100 constituent, expected to receive advance payments for new contracts it secured last year. However, these payments have been delayed because the company struggles to obtain performance guarantees from its banks in order to unlock payments.
As banks are less willing to finance oil and natural gas projects, it has become harder for companies to obtain performance guarantees. The company’s challenges have been compounded by the distressed state of Petrofac’s balance sheet.
Covid was responsible for project delays. Petrofac, however, also became part of the pandemic as it tried to recover from financial and reputational damages caused by an ongoing Serious Fraud Office investigation. This investigation resulted in a payment of $104 millions in 2021, after it was found that the company failed to prevent corruption.
an additional loss of $130,000,000 is expected for its core Engineering and Procurement division, on top of the $180,000,000 losses that were already predicted for this business. Asset solutions may not even break even from an operational standpoint. At the end of 2016, net debt was $583 million.
The company is still deciding how much funding it needs to expand and what kind of restructuring they will implement.
A group of bondholders announced that they will provide $300,000,000 in new funding for the purpose of securing performance guarantees on some of Petrofac’s existing contracts. It would also require that a “significant” portion of the debt of the company be converted into equity. Swaps of debt for equity can wipe out current shareholders.
Rene Medori (66), chairman of Petrofac said that the board “was focused on arriving as quickly as possible at a comprehensive refinancing”.
A delay in the auditing of the company’s account means it will not be able to publish the results of last year before the deadline set for the end of this week. Shares will be suspended temporarily on May 1 until the results, expected before the end May, are released.
Guillaume Delaby said that the suspension of shares and the announcement of additional losses in the engineering and construction division and asset solutions division pointed to a “very severe financial restructuring” for the shareholders.
Petrofac is a company that designs, builds, and operates energy-related installations for oil companies and other businesses. It was listed on the London Stock Exchange in 2005, and its value has fallen from £6 billion to £80million in a decade.