CGG faces uncertainties to carry on ‘as a going concern’
French geophysical services player CGG might be facing a going concern issue amid financial restructuring process aiming to reduce its massive debt.
The company’s restructuring plan entails full conversion of unsecured debt into equity and raising up to $500 million of new money through a $125 million rights issue and the issuance of $375 million of new secured second lien senior notes with a six-year maturity.
In its financial report for the second quarter 2017 on Friday, the French company said that, as of July 27, 2017, it faces material uncertainties that may cast substantial doubt upon its ability to continue as a going concern.
According to the company, even under the protection of the court procedures and despite having successfully implemented during the first six months of 2017 all planned specific actions related to marine liabilities, fleet ownership and major contract factoring, the $315 million of group liquidity as of June 30, 2017 does not allow to fully fund its current operations until at least June 30, 2018.
CGG explained that the ability of the group to continue as a going concern then depends essentially on the effective and timely implementation of the proposed restructuring plan, especially the raising of up to $500 million of new money by early 2018. Should the creditors involved in the French safeguard and US Chapter 11 procedures or the shareholders fail to approve the proposed restructuring plan and/or should the targeted implementation timetable of such restructuring plan not be met, the group liquidity would decrease below the required level to run the operations no later than in the first quarter of 2018 according to the company cash flow forecasts.
If the $500 million new money is raised in the first quarter of 2018, the group liquidity is expected to be sufficient to fund current operations until June 30, 2018 at least.
CGG noted it believes that the implementation of the restructuring plan in the first quarter of 2018 is a reasonable assumption.
Revenues up but loss deepens
In the Friday report, the company posted revenues for the second quarter 2017 of $350 million, up 21% year-on-year and revenues of $290.2 million and up 40% sequentially. The company’s multi-client sales were boosted by Mexican and Brazilian licensing rounds.
On the other hand, the company’s net loss for the 2Q 2017 deepened to $170 million from a $79.2 million net loss in the prior-year quarter.
At the end of the quarter, CGG’s gross debt was $2.812 billion. Available cash was $315 million and group net debt was $2.497 billion.
This year’s operating results are still expected to be in line with 2016.
Jean-Georges Malcor, CGG CEO, said: “Our 2017 outlook is unchanged, with operating results in line with 2016 and downward pressure on cash flow generation as expected.”
Following the creditors’ committees vote in France, which is expected on Friday, and the approval of creditors in the U.S., sought by mid-October, the next decisive step in CGG’s restructuring will be the approval of the financial restructuring plan at the shareholders’ Extraordinary General Meeting at the end of October.
“This proposed plan would result in a $2 billion net debt reduction and would provide the necessary liquidity to support the Company’s turnaround, while allowing shareholders to participate to the recovery,” Malcor concluded.
Offshore Energy Today Staff