Seadrill Ltd. plunged to the lowest since it emerged from bankruptcy less than year ago after Carnegie Investment Bank AB recommended selling the shares and slashed the price target by 88% amid mounting recovery concerns.
The offshore rig market recovery is “not happening fast enough” for Seadrill, Carnegie said in a note to clients on Monday. The investment bank cut its recommendation from a buy and lowered the target price to 25 kroner from 210 kroner.
The rig company controlled by billionaire John Fredriksen emerged from bankruptcy protection in July after a protracted battle with creditors. Despite raising new capital and cutting liabilities, Seadrill still has almost $6 billion of bank debt that was pushed down the road to enable it to wait for better times.
Seadrill fell as much as 17% to 39.22 kroner a share on Monday, the lowest level since re-listing at the end of July. The stock has dropped continuously since Thursday, when oil’s worst day of the year pushed industry shares down.
Seadrill had $7.8 billion in liabilities at the end of the first quarter, including $5.7 billion in secured bank debt. It will start amortization payments in 2021 at the latest and face the first maturities the following year, and Carnegie estimated annual interest costs at $400 million.
“We see a high probability of liquidity drying up by 2021/22,” Carnegie analysts Frederik Lunde and Lauritz Georg Karvel said in the note. “The severe cut in target price is a function of the high debt.”
Recent contracts for ultra-deepwater drillships owned by Diamond Offshore Drilling Inc., due to start in 2020 and 2022, indicate a significant improvement in future rental rates — but not enough for Seadrill to meet its debt maturities, Carnegie said. The Diamond rates, estimated at as much as $295,000 a day, are almost twice the current price, according to the bank. But that compares to assumptions of around $400,000 for 2020 and 2021 in Seadrill’s December 2017 business plan underpinning the company’s restructuring.
“Simplistically, one could say that the recovery is way behind schedule,” Carnegie said in the note.
When contacted by Bloomberg on Monday, a Seadrill spokesman referred to comments by Chief Executive Officer Anton Dibowitz last week that he remains confident that the market will recover in time.
Carnegie is the only bank advising clients to sell Seadrill, which has 12 buy and one hold recommendation.