May 16, 2014 1:47 pm

Lamprell outlines $120m rights issue

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Lamprell

Lamprell is to raise $120m in a rights issue aimed at improving manufacturing facilities following the oil rig maker’s return to profitability.

The Gulf-based company, hit by profit warnings and senior management departures over the past two years, said about half the funds raised would be used on upgrades at its yards, with the remainder used to repay debt and strengthen its balance sheet.

John Kennedy, chairman, said the planned refinancing followed a year of operational improvements under revamped management.

Last month Lamprell successfully delivered a 13,000 tonne production and accommodation deck to a North Sea platform as part of the $2bn Golden Eagle development, which is led by Chinese-owned operator Nexen, 70km northeast of Aberdeen. First production on the field is expected later this year.

Mr Kennedy added that further orders for rigs and successful completion of projects within budget had improved the prospects of Lamprell ahead of launching the rights issue.

Last year Lamprell made a profit of $31m compared with a loss of $111m the previous year, largely blamed on penalties imposed under lossmaking contracts to deliver two wind turbine installation vessels to Norwegian client Fred Olsen.

However, Lamprell’s share price performance has remained subdued since it warned in March that revenues could fall this year and next amid general delays in project awards in the sector. On Friday the share price was down 4 per cent to 140.44p.

JPMorgan Cazenove and HSBC are underwriting the five for 16 rights issue of 81m shares at 88p, which is expected to raise £71m, subject to shareholder approval.

In addition to investment in welding and cutting facilities at its yards, the fundraising should allow for reductions in interest rate margins and lower bonding costs for projects, said Mr Kennedy.

To secure work, Lamprell must typically secure bonding – financial guarantees provided by banks over completion of work ahead of delivery to customers – currently running at $400m.

On Friday analysts at Investec welcomed the prospect of an easing of facilities with Lamprell’s lending banks, which they said were “negotiated from a position of weakness” in the first half of 2013.

“This will strengthen Lamprell’s financial strength and help it increase its addressable market, where it suffers against the superior financial terms offered by Asian competitors,” they added.

James Moffat, chief executive, described the refinancing as the “final piece of the jigsaw” in Lamprell’s recovery, saying conditions were right for the rights issue. “There’s money in the marketplace today,” he said.

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