Dutch offshore surveyor Fugro has seen the price of one of its bonds decline recently, prompting fears over its ability to repay its debts.
In the past few days the price of its EUR 100m ($114.4m) 2021 subordinated convertible bond has fallen to 86%, now reflecting a yield-to-maturity of 9.7%, according to ABN AMRO.
“This is a serious deterioration from the around 6% levels seen in Sep-Nov 2018, and well above the nameplate yield of 4%,” said analysts Thijs Berkelder and Wim Gille.
“In our view this is a clear signal that the bond market recognizes that Fugro’s ability to repay this debt is threatened by the renewed weakness in the oil market.”
Fugro’s two listed convertibles, the EUR 100m 4% 2021 and the EUR 190m 4.5% 2024, are subordinated against EUR 430m which has been drawn from a revolving credit facility (RCF), which is scheduled to be redeemed and/or renewed in 2020, according to ABN AMRO.
“With the recent sharp correction in the oil market, with Brent back down to $55 from a peak of $85 in early October, it must be clear that E&P companies in 2019 will probably remain hesitant to up their capex spending,” said Berkelder and Gille.
“In addition, the geopolitical uncertainties from the trade war between the US and China, Brexit, yellow vest in France, potential sanctions against Saudi Arabia, etcetera, will probably also dampen the growth prospects for infrastructure.”
As such, without an equity raise, the two analysts said they find it difficult to explain how Fugro will service its debt pile, and what conditions the banks will set for renewing the RCF, especially when “recognizing that the convertibles will also need to be refinanced”.
