O&M

O&M: Wave of debt covenant amendments; who is affected?
Offshore player, Linc Energy has obtained approval from noteholders to amend the terms of its US$200m 7% convertible notes due in 2018 as credit risks mount amid the downturn in the O&M industry.

The amendments include:
1) Removal of the put option which noteholders could exercise on 10 Apr ‘16
2) Forfeiture of the interest payments from 10 Oct ‘15 until maturity on 10 Apr ‘18
3) Reset of the conversion price from $0.77 to $0.12105/share
4) Option to require Linc to direct 50% of any asset sale proceeds towards the redemption of the notes

The amendments will now be subject to approval of shareholders.

The debt adjustments throw the sector into the limelight, with many offshore companies previously loading up debt to expand their operations.

With the downturn in oil prices particularly painful for smaller oil players, there appears to be a rush to amend debt covenants in order to avoid defaults with some companies coming dangerously close to their minimum interest cover of 3.0 times.

Companies that have conducted similar exercises include:
1. Marco Polo
2. Pacific Radiance
3. Dyna-Mac
4. Otto Marine
5. Tat Hong

Companies that are currently seeking to amend covenants include:
1. Ezra
2. Kris Energy
3. Nam Cheong
4. AusGroup

While oil price pressures are likely to persist in the near to medium term, Maybank-KE maintains its Negative view of the sector. Although valuations look cheap, there is little reason for investors to buy in now.

Within the sector, the house's top Sells are Sembcorp Marine (Sell; TP: $1.53), Nam Cheong (Sell; TP: $0.12), and Vard (Sell; TP: $0.22).