$110b of debt of global oil companies due in 5 years

Already reeling under massive decline in oil prices, about $110 billion (Dh403.7 billion) of debt held by the overseas oilfield services and drilling companies is due for payment in the next five years. The junk bonds make up 65 per cent of the total, Moody’s Investor Services said in a report.

Junk bonds are securities that are not invest rated. The default rate on corporate junk bonds can be a surprise 20 per cent because historically it has risen as high as 69 per cent.

In 2018, about $21 billion of debt will mature, which is almost three times the total maturity rate in 2017. The debt burden continues to edge higher into 2021, when nearly $29 billion of issuance and revolvers are scheduled to come due.

This could mean problems for the bond issuers if financial conditions worsen. Many of the larger companies may refinance or roll over their bonds until business conditions improve, but the smaller companies would have to pay out of their current cash on hand, Morris Borenstein, Moody’s Assistant Vice-President, said in a statement.

Currently as earnings continue to decline, old field services companies are not only facing challenges to service their debt (in the case of coupon payments) but may also see their refinancing options become “severely” limited or even eliminated, according to the report.

Corporate defaults

And this is making fund managers edgy on these bonds. S&P Global Ratings said in May that it expects corporate defaults to keep rising, dominated by energy companies. Between the start of 2015 and March 2016, the energy sector accounted for half of all corporate debt defaults in the United States.

However, some people are more optimistic.

“It is possible to see some defaults by energy companies in the US, and it’s normal and healthy. There’s nothing to get scared about,” Sergei Strigo, Portfolio Manager and Head of Emerging Market Debt and Currency, Amundi Asset Management told Gulf News.

Given expectations for continued low prices for oil and natural gas in 2016, this sector is expected by S&P Global Ratings to continue to dominate the default total, with the high likelihood of its proportion growing throughout the year.