Financing woes — By selling PR1 at 20% discount despite the attractive build price secured in Aug-05 (mid-phase of the rig up-cycle), PM is clearly facing difficulties in the market. This sale could also be triggered by PM failing to meet a bond loan agreement requiring it to raise another US$50mn of equity by 13-Mar-09 (source: Oslo Bors), for which grace period has been extended until two days' written notice is served, as PM assesses its funding options.
Funding woes may ease — Our Feb-16 report highlighted that Petromena’s funding shortfall of US$300mn for three semi-subs may be plugged if PR3 is sold, as this would free up ~US$228mn additional cash, which is sufficient to plug the funding gap for all the three semi-subs under construction. So far, there has been no update on the status of the offer for PR3. Alternatively, if PR1 is sold, funding woes will ease though shortfall of ~US$55mn remains.
PetroProd Bond “Event of Default” — In a separate announcement on Oslo Bors, PetroProd (PP), another SMM customer related to PM, failed to meet a bond loan agreement requiring it to raise another US$45mn of equity by 13- Mar-09 (including grace period), triggering an "Event of Default" under the agreement. PP has outstanding orders at SMM consisting of 1 FPSO conversion (which has been sold) and one harsh environment jack-up rig (without charter). Outstanding capex on the jack-up is US$258mn with expected delivery in 3Q10.
Sector indications — The start of de-leveraging among cash strapped players exiting the market could have mildly positive implications on rig builders: in our view, transferring rig assets under construction to owners with stronger balance sheet strength could protect order book and earnings, and mitigates the extent of potential order book capitulation. We believe more distressed sales will follow, but limited to rigs with charter contracts.
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