Moody’s: BW Group Unfazed by BW Pacific’s Binned IPO

BW Pacific Limited not proceeding with its planned IPO and listing on the Oslo Stock Exchange has no impact on the credit rating of its majority shareholder, BW Group Ltd, rated at Ba1 stable, as the decision will have limited implications on BW Group’s liquidity profile or capital structure, according to Brian Grieser, a Moody’s Vice President – Senior Analyst.

BW Group, who’s 68.9% ownership interest in BW Pacific would have been reduced to 44%-48% had the IPO been successful, was expected to receive proceeds of potentially USD 30 million from the IPO. Receipt of these IPO proceeds would not have had a material impact on BW Group’s liquidity, according to Moody’s.

“BW Group currently has a very good liquidity profile supported by a cash balance of USD 788 million at 30 June 2015, USD 400 million of committed revolver availability and strong cash flows from its majority owned subsidiaries as well as dividends from non-controlling investments,” said Grieser, who is also the lead analyst for BW Group.

On November 2, BW Pacific announced its intent to sell almost 49 million new common shares and 10 million existing common shares at between NOK 44 and NOK 50 per share. Proceeds from the new common shares of roughly USD 250 million were expected to be used to repay USD 97 million of debt due in 2018, fund USD 79 million of pre-delivery installments on 6 new LR1 tankers and the balance of USD 67 million was to be available for general corporate purposes.

With the postponement of the IPO, BW Group may have to commit funds for the USD 67 million of pre-delivery installments at BW Pacific, which were planned to be financed with IPO proceeds. If BW Group is required to contribute cash to BW Pacific, Moody’s believes this would be easily managed given the strength of BW Group’s liquidity profile.

BW Group’s capital structure is expected to remain largely in-tact, although the consolidated financial statements will continue to include BW Pacific and its debt. Had the IPO been successful, debt of USD 646 million would have been deconsolidated from BW Group’s balance sheet.

The loans are the obligation of BW Product Tankers Pte. Ltd., a subsidiary of BW Pacific, and are not guaranteed by BW Group. The loans are secured by BW Pacific’s fleet of 17 LR1 tanker vessels and 12 MR tanker vessels, which provide 147% vessel asset value coverage of the loans, Moody’s says.

BW Pacific’s loans are long dated and annual interest and loan amortization requirements will be fulfilled by BW Pacific. As such, Moody’s expects limited financial support to be required from BW Group in 2016-2017 outside of the potential funding of the delivery installments.

The balance of BW Pacific’s newbuild program is largely prefunded with debt and will be secured by new vessels of BW Pacific as they are delivered.

BW Pacific, owned 68.9% by the BW Group and 31.1% by PAG Tankers Limited, has a fleet of 35 vessels, comprising 17 owned LR1s, 18 owned MRs and a total of 10 newbuildings, of which six are LR1s and four are MRs.