Aban Offshore raises Rs 750 cr by diluting 25% equity

The money was raised through QIP

Aban Offshore, a Chennai-based offshore drilling rig services company, has raised Rs 750 crore through Qualified Institutional Placement (QIP) of equity shares. The company has diluted 25% of equity and it's shares were oversubscribed by 2.5 times, according to market experts.

In an announcement to BSE, the company said that its capital Issue committee approved the issuance of 10,783,608 equity shares of face value of Rs 2 to Qualified Institutional Buyers at an issue price of Rs 695.50 per equity share, which is at a discount of Rs 36.47 per share to the Floor Price Rs 731.97 per equity share.

The company has raised Rs 750 crore of capital through 25% dilution of equity, which will presumably be utilised to reduce debt (by a modest 5%).

Earlier the company said that it has adopted the preliminary placement document for raising upto Rs 2,500 crore through QIP.

While the company did not disclose how the money will be utilised, experts said it might not go for big asset acquisitions at this point and, hence, will try to repay part of its $2.4-billion debt.

Kotak's Institutional Equities report stated that 'we remain concerned on Aban's balance sheet given high leverage, which has resulted in net debt/EBITDA of 5.6X and EBITDA to interest coverage ratio of 2.1X in FY2015E. Potential underutilisation of fleet and/or correction in day rates may pose meaningful risks to debt repayment ability".

The report further stated that potential narrowing of premium on day rates for rigs deployed in Iran. A potential resolution of the ongoing nuclear issue between Iran and the US may result in gradual removal of sanctions, thereby allowing global offshore majors to bid for drilling contracts in Iran.

"This may result in narrowing of premium on day rates commanded by Aban for deploying its jackups in Iran currently. Aban's three jackups deployed in Iran earn day rates of $170-180 thousand, higher than $125-150 thousand for jackups deployed in other regions in the same period," said in the report.

Aban Offshore is among the world's 12 largest offshore service providers specialising in drilling services for offshore exploration and production of hydrocarbons globally.

The company has a diverse rig portfolio comprising 15 jack-ups, two drill ships and one floating production unit to suit diverse customer needs and requirements. It also owns 18 offshore assets - low vintage fleet with 50% of rigs less than eight years old with an estimated order backlog of $1.1 billion as on March 31, 2014.

According to the Kotak report, of the 18 rights nine are 21-31 years old.

The older fleet will not only earn lower day rates, but also require frequent maintenance capex and may find it difficult to compete with newer rigs of better drilling configurations.

Subdued global utilisation of offshore rigs, utilisation rates of offshore drilling rigs has declined to less than 80% currently versus 85% a year ago led by addition of new fleet in the global markets.

The report also noted, global utilisation of jackups shows a similar trend, declining to 78.6% currently from 85% a year ago led by 10% increase in available fleet.