Aban Offshore plan may lead to heavy equity dilution

Aban Offshore, which lost its semi-submersible rig Aban Pearl on May 13, is facing a severe cash crunch. To meet its huge debt obligation for FY11-12 the company’s board of directors at its meeting on Tuesday approved raising additional long-term resources through issue of foreign currency convertible bonds, global depository receipts, American depositary receipts, etc, not exceeding amount equivalent to $400 million, and issue of equity related securities to qualified institutional buyers up to Rs 2,500 crore. This is, however, subject to shareholder approval. The sinking of Aban Pearl, the highest earning asset of Aban, had triggered serious worries over the company’s cash flows. For fiscals 2011 and 2012, Aban has debt repayment lined up of $375 million and $650 million ($1025 million in total), respectively. Aban has a debt obligation of $1,025 million for fiscals 2011 and 2012 (estimated), against expected cash flows of $500 million and $240 million from operations and insurance compensation, respectively, implying an unfunded portion of $285 million, according to Saeed Jaffer and Nitin Tiwari, analysts with Ambit Capital. In such a scenario, Aban would find it challenging to fund (either by equity or debt) this gap due to loss of revenues from a high cash generating asset. Kapil Yadav, analyst, Dolat Capital, said, “It will be very tough for Aban to raise money in such a scenario in order to meet its debt obligation as the market sentiment is not very upbeat and the cash-flow situation of the company is not very comfortable.” Kunal Lakhan, analyst with K R Choksey Shares & Securities, said since the contract with Petroleos de Venezuela, the Venezuelan oil company, is terminated it will lead to loss of revenues to the tune of Rs 350 crore every year. If Aban raises money at this point of time it will lead to heavy equity dilution as the stock is trading at sub-Rs 700 level. Aban Offshore stock has declined 32.66% since May 14 to Rs 685. The semi-submersible rig was a significant contributor with annual revenues of $123 million and Ebidta of $77 million. Analyst estimates show that there could be an annual revenue and Ebidta losses of $125 million and $81 million, respectively, due to the incident.