Norway's bond market in default mode on oil slump

OSLO • Norway's multibillion-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 US$10 billion (S$13.5 billion) and is a crucial hub for debt financing for many small and mid-sized firms from Norway and overseas.

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

Nordic Trustee, the sole organisation 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.

The paralysis could accelerate the decline of the oil services industry, even should crude prices stage a sustained recovery, and lead to further job losses in the Norwegian oil sector, which has shed thousands in recent months.

The oil sector accounts for about a fifth of Norway's stagnating economy and the jobless rate has risen to its highest level in 11 years.

"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 Mr 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.

REUTERS

A version of this article appeared in the print edition of The Straits Times on April 12, 2016, with the headline 'Norway's bond market in default mode on oil slump'. Print Edition | Subscribe