Market banks on Petrotrin's business plan despite looming maturities
October 11, 2018 |
Caribbean DCM sources expect the oil company to turn its fortunes around with revised strategy and service its 2019 bonds without government support
Petrotrin's shifting focus towards greater exploration & production (E&P) works has market sources confident that the oil company can independently service its debt next year.
The Trinidad & Tobago, state-backed firm has $850m in 9.75% 2019 bonds due next August and after deciding to halt refining operations a couple of months ago, investors cautiously welcomed Petrotrin's shift away from the loss-making initiative.
The 2019s have ballooned in yield terms to more than 12% in recent weeks.
"Petrotrin's refinery sucked a lot of capital investment out of E&P," one DCM banker in the region said. "Reserves need to pick up and the company needs to get back to drilling."
To make matters worse, Petrotrin produces roughly 40,000 barrels of crude oil per day (bpd) while its Pointe-a-Pierre refinery had been operating at a capacity of 140,000 bpd, signaling a significant mismatch in production operations.
"Right next door we have Guyana making oil discoveries," a T&T-based banker said of the neighboring nation that has been able to plough more investment into E&P.
Investors, by-and-large, remain in the dark over how Petrotrin plans to roll-over or pay back its maturing bond debt. The first source, however, said the company's decision to halt the refinery was indicative that government support would unlikely materialize for any debt refinancing.
"After seeing what was done with the refinery, the government is not going to increase their debt burden," he said. "If they do, it might be towards more development initiatives."
Possible solutions involved T&T leveraging its investment grade status to place bonds that could be on-lent to Petrotrin, while some sources have suggested the idea of a new Petrotrin issuance backed by the government.
"They have to find ways to be creative, but the noise that has permeated from the closing of the refinery means that this is not the ideal time to be doing this," the banker said in regards to a debt refinancing.
While the transition to a more E&P-focused oil company will take time, multiple sources agree that Petrotrin will become more profitable in the future.
"This is a multi-million dollar company that should be able to service its debt without need for the government to step in," the first source said. "There is a cliff coming up and the company has to make some tough decisions."
Petrotrin has just over $1bn in external bond debt and has lost more than $1bn in the last five years.
Image: Petrotrin refinery in Trinidad & Tobago. By Marc Aberdeen/ Flickr