Based on press releases issued by Petromena and the financial advisor to its bondholders, bondholders representing at least 50% ownership in each of three bonds issued by Petromena have formally issued a notice of default.

It is possible that through this notice of default, Seadrill and other bondholders may be manoeuvring to control Petromena’s assets. Whether they can finance these rigs’ outstanding obligations or will seek to renegotiate payment terms with SMM is unknown.

Petromena has challenged the bondholders’ notice by claiming that no event of default exists. A legal battle may be a foregone conclusion. But regardless of the eventual outcome, this further complicates Petromena’s funding discussions and may also have ramifications for the other Larsen Oil & Gas group companies.

We estimate Larsen group and Seadrill comprise 24% and 20% of SMM’s latest net order book, respectively. We reiterate our UNDERPERFORM rating and target price of S$0.95, on continued uncertainty over customers, weak demand and SMM’s relatively high valuations.

The financial advisor to Petromena’s bondholders issued a release stating that bondholders representing at least 50% of each of Petromena’s three outstanding bonds are issuing a notice of default. Bondholders have cited their concern about Petromena’s financial stability and allegedly hostile attitude of management towards bondholders as the main reason behind their action. Petromena’s management has in turn vigorously defended against these claims and suggested that no event of defaults exists. A legal battle for control is now likely.

As this action has taken place shortly after Seadrill acquired 80% of Petromena’s NOK2 bn bonds on 30 March (for details refer to our Source: Credit Suisse estimates.

Asian Daily on SMM dated 31 March) it is possible that this notice may be a legal manoeuvre by Seadrill and other bondholders to take control of Petromena’s assets. Whether the bondholders can subsequently fund the outstanding obligation for these rigs towards SMM and other suppliers on the basis of current terms is unknown at present. As a reminder, Petromena’s outstanding bonds have an outstanding principal value of over US$790 mn and are primarily secured against the three Petrorig semi-subs currently under construction.

As a final note, this conflict between Petromena’s management and bondholders could have repercussions for the other Larsen Oil & Gas companies – including PetroProd and LOG Rig – which are also Sembcorp Marine's customers. We estimate Seadrill and Larsen group jointly account for almost 44% of SMM’s latest net order book, including the US$247 mn contract from SeaDragon Offshore.