Shares in Petrofac (LON: PFC) have declined by more than 30% since markets opened today as the company struggles with its debt load.
As of publication, shares in the company were trading at 15.2 pence, down 31.83% from the 22.7 pence from their price at market close on Friday 26 April.
The company announced that it will temporarily suspend trading in its shares from 07:30 am on 1 May due to delays on its full year report for 2023.
Trading will resume once it publishes its figures, with the company expecting to deliver them by the end of May.
Director and oil & gas research analyst at Panmure Gordon Ashley Kelty told Energy Voice: “PFC woes have been coming for a long time. It was bogged down by the corruption scandal and didn’t see how the market was changing and doggedly stuck to turnkey EPC contracts which made losses, and thus no surprise that banks didn’t want to support these in a rising inflationary environment.
“The high levels of debt, coupled with project delays and rising costs were a further blow. The outlook isn’t good – a debt for equity swap by the bondholders looks likely as only way to survive, and this will hammer existing shareholders.
“I can’t see any way that they won’t have to make big cuts to the workforce to reduce costs. I don’t think a white knight rides in to save them due to the structural problems that led them into this situation.”
Tough conditions
The group’s 2022 results were hampered by challenges at its engineering and construction division. Revenues dipped, resulting in a $310m net loss. In particular, its deal with Thai Clean Oil Fuels caused issues due to delays resulting from the Covid-19 pandemic, along with the scale and complexity of the work.
However, the company has been working to develop its orderbook in recent years, including major contracts with the likes of TenneT.
This led to the company adding 3,000 people across 2023, pushing its headcount to around 8,600.
While the company is likely looking to reduce expenses, its strong orderbook may mean the company prefers to maintain staff to ensure it completes work on time to ensure revenues.
Restructuring
An update from Petrofac explained: “This development comes as the Company continues to manage its payment obligations to preserve liquidity whilst progressing the other components of the restructuring with other stakeholders.
“The Group’s upcoming payment obligations include amortisation payments due on the Company’s bank facilities and the coupon payment due on its senior secured notes on 15 May 2024.”
Under the firm’s restructuring an ad-hoc group of senior secured noteholders have made a proposal to provide further credit to the business of up to US$300 million.
This is made up of $200 million of new funds and $100 million of credit support to help secure performance guarantees for certain of its existing contracts.
Petrofac added: “The Company is in active discussions with credit providers to obtain the required guarantees, which would also release over US$200 million of collateral and retentions, and will provide an update on the outcome of those discussions as appropriate.”
Petrofac will have to make good on payment obligations to its bank and the coupon payment due on its senior secured notes by 15 May.
However, the firm does not expect to make payments on time.
The London-lister firm said: “The payment has a 30-day grace period. The ad-hoc group of noteholders, representing approximately 41% of the outstanding notes, has entered into a forbearance agreement with the company, which provides an assurance that those noteholders will not take any action in respect of the non-payment of the coupon until at least 30 June 2024, in order to provide time for the Group’s financial restructuring to be progressed.
“The company will seek to engage with other noteholders in the coming weeks.”
Backlog
Previously, Petrofac has said it has a “US$8 billion backlog” as it set an aim to manage payment obligations to ensure that it delivers this work.
When addressing its financial issues in the past Petrofac has also pointed to its backlog of work as a positive.
However, analysts have said cash flow will be crucial in ensuring that is deliverable.
To address its debts Petrofac has discussed selling off part of the business.
Earlier this month the firm shared that it “remains in discussions” with its lenders to restructure its debt with options to exchange equity in the business.
The business is also said to be continuing discussions with “prospective investors and certain major shareholders” regarding further investment into the company.
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