Highly-leveraged offshore players struggle as credit risks intensify

These firms need to service $2.7b worth of debt.

Small and mid-cap offshore players have relied on easy credit to fund growth in the past few years. But credit risks are now intensifying for these firms following the unprecedented plunge in oil prices.

According to CIMB, small/mid-cap O&M stocks under its coverage have around $2.7bn of outstanding bonds outstanding versus a combined market cap of around $4.2bn.

CIMB noted that the softer outlook is now weighing on bond prices. For instance, Swiber’s $160m 7.125% 4-year notes are trading at around 90 cents to a dollar.

“Liquidity in the bond market has also tightened, with expectations of rising interest rates. Furthermore,
highly-leveraged small/mid-cap oil services companies have to contend with refinancing risk and higher interest costs, which would eat into profits,” said CIMB.