Seven Energy earns ratings upgrade from Fitch, as junk status clings

by | February 12, 2017 1:12 am

Nigeria-based Seven Energy Limited (SENL) Long-Term Issuer Default Rating has been upgraded to ‘CC’, according to a statement released last week by Fitch Ratings, a global rating agency.
Fitch had in September 2016, downgraded the privately held oil and gas exploration and development company from ‘B-,’ representing moderate risk levels, to ‘CC’, reflecting very high-risk levels. Fitch had based the downgrade on Seven Energy’s significant ongoing liquidity, security and execution risks.
Nigerian banks, Ecobank Nigeria Limited, FCMB Bank and Union Bank plc had on July 15, 2016, syndicated a $445 million Senior Debt Facility to Accugas Limited, a wholly-owned subsidiary of SENL, to refinance existing facilities and support medium-term capital requirements. The facility was turning to a bad loan for the banks, prompting the oil company to seek loan-restructuring arrangement from its creditors. 
The rating report said the company’s short-term liquidity remained extremely weak due to accumulated accounts receivables for sold natural gas, a limited ability to convert naira into dollars, and the ongoing Forcados export pipeline closure since February 2016.
“Management has taken steps to improve the company’s liquidity, but we believe the current debt structure may be unsustainable and a default of some kind is probable.
“On 7 February 2017, Seven Energy announced that Nigerian Petroleum Development Company Limited (NPDC) may terminate the SAA after 17 March 2017, unless the company meets outstanding cash calls. We understand from Seven Energy that it plans to challenge this potential action to preserve its contractual rights under the SAA. This may further worsen the company’s liquidity position and affect its operational profile; however, these risks are captured in the ‘CC’ rating.”
Uncertain cash flows, liquidation risk, naira convertibility issues are among the reason Fitch gave for retaining Seven Energy’s rating in the junk range despite the slight improvement.
“Near-term cash flows from the gas business are uncertain as sale volumes remain volatile and the company’s major gas off-takers, state-owned power stations, delay payments for consumed gas. In November 2016, Seven Energy agreed a $112 million partial payment guarantee with Nigeria’s Federal Government for gas supply to the Calabar power plant and other customers; however, the guarantee is still unavailable pending finalisation of ancillary documentation.”
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