Energy Exclusive: Norway’s high-yield bond market becomes latest casualty of oil turmoil

Exclusive: Norway’s high-yield bond market becomes latest casualty of oil turmoil

File-The SEADRILL 3, the first of four oil rigs that Keppel FELS is building for the same customer, is seen in Singapore in this April 21, 2006.
File-The SEADRILL 3, the first of four oil rigs that Keppel FELS is building for the same customer, is seen in Singapore in this April 21, 2006.

Norway’s multi-billion-dollar high-yield bond market has become the latest casualty of the oil industry slump, with looming debt defaults for firms that operate supply ships and drilling rigs set to hammer investors who bet on the once-booming business.

Shunned by new investors, bond issuances by companies that provide services to the global oil industry have dried up. This has effectively shut down a part of the corporate bond market that is worth around $10 billion and is a crucial hub for debt financing for many small and mid-size companies from Norway and overseas.

“For the moment it is closed for small to mid-cap companies. It’s a wipeout of value,” said Paddy Rodgers, chief executive of oil tanker company Euronav, adding that investors had been left taking extra risks without any significant improvement in returns.

Nordic Trustee, the sole organization that represents the interests of bondholders in Norway, told Reuters that around 20 companies, mostly oil services firms, were “in an active process” of restructuring their debt, but declined to name them.

“With a persistently low oil price, a lot of companies are in trouble,” Nordic Trustee Chief Executive Ragnar Sjoner said. “There has been an increasing number of firms (restructuring debt) in February and March,” he added.

This paralysis of this global hub for debt financing for many small and mid-size companies could accelerate the decline of the oil services industry, even should crude prices stage a sustained recovery. This could lead to further job losses in the Norwegian oil sector, which has shed thousands in recent months.

This would put more pressure on Norway, where the overall oil sector accounts for about a fifth of the stagnating economy and the jobless rate has risen to its highest level in 11 years, especially in the oil capital Stavanger and its environs on the west coast.

“The Norwegian economy is more geared to oil production and offshore activities per se and therefore relative to many other economies, they will be suffering greater simply because it is a bigger proportion of their economic GDP,” said James Kidwell, chief executive of shipping group Braemar.

Several firms that provide services to the global oil industry, including BW Offshore, Seadrill, Viking Supply Ships and Songa Offshore have warned in recent weeks that they were experiencing tougher financing conditions and were seeking support from investors.

“If you are a Norwegian company, with a couple of exceptions, there is no market for you outside Scandinavia. You’re not big enough to enter the U.S. bond market or the euro bond market,” said Thomas Eitzen, credit strategist with Swedish bank SEB in Norway. “The prices of a lot of bonds have been discounted.”


Oil services firms expanded rapidly during a decade-long oil boom, fueled by billions of dollars in high-yield bonds bought by investors chasing high returns in an era of falling yields.

But they have been hard hit by a 65-percent plunge in oil prices since mid-2014. Energy companies slashed investments, hiring fewer drilling rigs, supply vessels, seismic ships and other equipment used in the search for oil and gas.

Norwegian oil services firms’ turnover is expected to fall to 86 billion crowns ($10.3 billion) in 2016, from around 103 billion crowns in 2014 after 13 years of growth, according to the Norwegian Shipowners’ Association.

This has taken its toll on the ability of such firms to service their debts and raise fresh finance, according to Nordic Trustee. A number of bonds are maturing and coming up for renewal this year, but the problems could extend further out.

“There are many firms which are not in default, but see that they won’t be able to meet their maturities in 2018 and 2019,” said Nordic Trustee CEO Sjoner.

By the end of 2015, the value of high-yield bonds outstanding amounted to 218 billion crowns, up from just 15 billion in 2003, data from Norway’s DNB Markets and financial data service Stamdata showed.

About 40 percent had been sold by oil services firms, by far the single-biggest group, DNB Markets said. But so far in 2016, there have been no new high-yield bond issues.

Harkand, which provides vessels and services to help oil companies handle subsea installations at offshore fields, became one of the first companies to declare a default on a bond last month, according to a regulatory filing with the Oslo bourse.

“The company continues to discuss with the bond trustee (on behalf of bondholders) a consensual solution that would render the company and its subsidiaries solvent,” Harkand said in the statement.

“The bond trustee has for now not declared the bonds to be due for immediate payment.”

Harkand did not respond to a request for comment. U.S. investment firm Oaktree Capital Management, which Harkand describes as its key shareholder, declined to comment.

An early victim was seismic firm Dolphin, which maps out oil and gas deposits for oil companies. It filed for bankruptcy in December after it was unable to renegotiate its long-term $250 million debt.

“In general, I would say … the bond structure or capital raising through bonds is up for renewal and for the time being it is challenging,” Bjorn Erik Naess, chief financial officer with Norway’s biggest bank DNB, told Reuters. “In the offshore sector, that is where I see the challenges.”


Companies experiencing difficulties include BW Offshore, an owner of floating oil production vessels, which said last week in its annual report that it was unable to tap the bond market for cash and could see liquidity reserves fall to a level breaching its debt covenants in 2016.

BW Offshore did not reply to a request for further comment on Friday.

Separately, rig firm Seadrill, once the world’s largest offshore driller by market value, said in February it would present a refinancing plan in the second quarter of this year to address its $10 billion bank and bond debt.

The 2017 bonds of Seadrill, whose top shareholder is shipping tycoon John Fredriksen, trade below 50 percent of par value.

Its CEO told Reuters on March 7 that Seadrill had a good dialogue with its banks and repeated the plan would be presented in the second quarter. The company did not reply to a request for further comment on Friday.

Viking Supply Ships and Songa Offshore both issued statements in late March requesting meetings with bondholders.

Viking Supply Ships said the decline in oil prices had led to a reduction in demand for its services, which had resulted in its liquidity position being “strained”.

    “In the current market, the earnings potential does not match the financing obligations,” it said.

The company declined further comment when contacted by Reuters.   

Songa Offshore has said it is seeking to get bondholder backing for a refinancing package of its bonds.

When contacted by Reuters, it said: “We have done the restructuring to avoid the risk of a default.” On Thursday the firm completed a $125 million convertible bond at 2 percent interest.

A report published last month by Norway’s central bank said the debt-servicing capacity of oil services companies listed on the Oslo Stock Exchange had “declined markedly” of late and was at its lowest since the early 2000s.

Although the crisis is serious, there is no systemic risk for Norway, the governor of the central bank told Reuters. According to a survey published last month by the central bank, the Norwegian oil services industry is increasingly confident it can replace lost business with work outside the oil sector.

“There are of course some companies that struggle, particularly within oil services,” said central bank governor Oeystein Olsen. “But altogether, we don’t see any big worries right now.”