Priority to slash or service debt: Aban Offshore

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Published: August 24, 2019 1:43:37 AM

The auditor to the debt-ridden Aban Offshore had raised concern over the ability of the company to continue as a going concern, mainly based on the review report of the company’s subsidiaries, by another audit firm.

While there is no certainty when the sectoral sentiment may turn for the better, there is a premium on the ability to be fully prepared at all times.

Aban Offshore, one of the largest private offshore drilling service providers, has said its priority is to reduce debt or service interest payments while trying to optimise the capacity utilisation of its assets.

A combination of the two will reduce the size of the company’s balance sheet, strengthen any-market competitiveness and reinforce business sustainability, Reji Abraham, MD, Aban Offshore, told the shareholders, in its Annual Report 2018-19.
The reassurance comes at a time when its auditor raised concerns over the company’s ability to continue as a going concern in the Q1 results review, citing default on certain debt and the continuing losses the company has been incurring.

The Chennai-based Aban Offshore has a debt burden to the tune of $ 2.3 billion, on its books.
The company is also seeking shareholders nod to raise funds through multiple instruments, including a sum of $400 million via GDR/ ADR/ FCCB issuance and another `2,500 crore through QIP, by way of an enabling resolution.

Abraham said he believes that the most prudent strategy in the challenging environment is mastering the defensive: controlling costs, enhancing asset availability and amortising fixed costs more effectively.
“We believe that in an environment where the prospect of an improvement in rig rates is negligible for the moment, the best strategy is to look within, remove inefficiencies, moderate costs and enhance overall competitiveness,” he said.

During FY 2018-19, the company had continued to focus on deploying most of its assets across the foreseeable future with the objective of reducing idling, generating revenues, covering focused costs more effectively and enhancing overall viability.
Reflecting guarded optimism, Abraham said while it would be too early to ascertain which way the oil market is headed, the optimism comes from the fact that oil prices rebounded and steadied in the high sixties level. The company is seeing an incidence where more enquiries are being converted into contracts.

While rig rentals are steady at $ 50-70 per barrel, compared to peak levels that were considerably higher, the objective, he said, is to maximise rig deployment at these rates. An excess of rig scrapping during the downtrend over rig introduction will steady the market across the foreseeable future.

A tipping point could then result in a larger demand for rigs than available supply, strengthening realisations.
“As one of the larger global rig owning companies with a wide portfolio and relatively young assets, we believe we are attractively placed to capitalise on the next upturn,”
he said.

The auditor to the debt-ridden Aban Offshore had raised concern over the ability of the company to continue as a going concern, mainly based on the review report of the company’s subsidiaries, by another audit firm.

The auditor, P Murali & Co, pointed out a review report by another auditor Nexia TS Public Accounting Corporation, Singapore, on the consolidated results of Aban Holdings, Singapore, along with its subsidiaries and associates which recorded that the Aban Group has defaulted on payment of their borrowings, which have fallen due, and has breached the covenants of their borrowings that give the lenders theright to demand the related borrowings be due and payable immediately.

Abraham said given the downturn the most effective strategy is to be opportunity-ready. While there is no certainty when the sectoral sentiment may turn for the better, there is a premium on the ability to be fully prepared at all times.

Aban Offshore had reported a consolidated net loss of `386.41 crore in Q1 of FY20, against the net loss of `312.77 crore in the corresponding quarter last fiscal.

The company’s total income, on a consolidated basis, plunged to `138.46 crore from `343.27 crore it earned in the corresponding quarter of last fiscal.

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