Bloomberg News

PGS Eyes Bonds to Boost Funds Amid Record Low Borrowing Cost

December 19, 2012

Petroleum Geo-Services ASA (PGS), the world’s third-largest seismic surveyor of oil and gas fields, may sell bonds as early as next year as it seeks to take advantage of high demand for Norwegian corporate debt.

The company, based in Lysaker near Oslo, could seek to raise about $200 million in bonds with a maturity of six to ten years, Chief Financial Officer Gottfred Langseth said. The funds would be used to strengthen the balance sheet and refinance loans maturing in 2015, he said yesterday in an interview in the Norwegian capital.

“We’ve covered our financing needs for the next couple of years, but if there are long funds available at a good price, we could consider taking up a little more debt to think even further ahead,” he said. Borrowing costs “for long maturities are at historically low levels. They may go lower, but in the next couple of years it’s more probable that they’ll rise.”

Nordic companies have been issuing debt at a record pace this year to tap demand after the region emerged as a haven from Europe’s debt crisis. Statoil ASA (STL), Norway’s largest oil and gas producer, and Seadrill Ltd. (SDRL), the world’s second-biggest rig- owner, have sold dollar bonds this year.

While PGS is “a dollar company,” what matters is “maturity and cost measured in dollars,” said Langseth. The company would consider selling bonds with a rate of 7 percent or lower, he said.

Record Issuance

Issuance of Norwegian high-yield bonds has jumped this year to about 50 billion kroner ($8.9 billion) as of Nov. 30 from about 31 billion kroner for all of 2011, according to Nordea Bank AB. (NDA) That takes this year’s total corporate issuance, including investment grade debt, to a record 92 billion kroner, surpassing 2007’s high of 83 billion kroner.

PGS, which plans to increase earnings before interest, tax, depreciation and amortization to $940 million to $980 million next year, had net debt of $381 million at the end of the third quarter, it said yesterday. It expects that amount to rise to less than $700 million by the end of next year, Langseth said.

The company has one outstanding bond of $300 million with a coupon of 7.375 percent due in 2018, according to data compiled by Bloomberg. PGS is offering a $150 million add-on to that issue, it said today. The seismic surveyor also has two loans due in 2015, a term loan of $600 million of which it’s drawn down $471 million, and an undrawn revolving credit facility of $350 million.

‘Very Attractive’

The spread, or difference in yield, between the 2018 note and Treasuries, was little changed today, after narrowing to about 550 basis points from as wide as 638 basis points on June 19. PGS, which held its capital markets day in Oslo yesterday, will draw on a $250 million Japanese export credit facility to help finance the purchase of two new vessels due to be delivered next year, with the rest coming from cash flow.

The company is rated BB at Standard & Poor’s and Ba2 at Moody’s Investors Services, both below investment grade.

PGS won’t need to raise capital by issuing equity, and is seeking a similar credit facility to fund two other seismic vessels, scheduled to be delivered in 2015, it said.

“It’s the credit market that we’ll use and play on to build the buffers that we need at any given time,” Chief Executive Officer Jon Erik Reinhardsen said in an interview yesterday. “The bond market is a very good market to raise money in right now, it’s very attractive in a longer time horizon because interest rates are relatively low.”

Underwater Maps

Oil and gas producers operating in the waters off Africa, Norway and South America are boosting spending on exploration amid growing energy demand. With established fields maturing and new resources harder to find and develop, demand is growing for the underwater maps collated by companies including PGS, TGS Nopec Geophysical Co. (TGS) and Polarcus Ltd. (PLCS)

Shares in PGS gained as much as 2.5 percent and closed 0.8 percent higher in Oslo, extending its advance during the last 12 months to 68 percent. That gives the seismic company a market value of 21 billion kroner.

PGS, the biggest seismic surveyor after CGGVeritas and Schlumberger Ltd. (SLB:US), has 14 seismic vessels and offers seabed mapping services to oil and gas explorers. The company could order additional so-called newbuilds within “a couple of years” for delivery in late 2016 or in 2017, Reinhardsen said.

Any money raised selling bonds wouldn’t be used for those vessels, Langseth said.

“It’s not like there’s a pressing need” to raise money, said Reinhardsen. “At the same time, we should use the windows of opportunity that are there.”

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net


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