Euro banks scale down exposure to O&G sector
Some have sold loans made to energy companies
LONDON: After hanging on for two years of depressed energy prices, some European banks that lent to the oil and gas industry are starting to scale down their exposure.
Lenders including UniCredit SpA, HSBC Holdings Plc and ING Groep NV have either sold some of the loans they made to energy companies in the past two months or held discussions with potential buyers, according to people familiar with the situations, who asked not to be identified because they weren’t authorised to discuss them publicly.
New loans to energy companies in the region have also fallen by more than 50% year, data compiled by Bloomberg show.
Banks are losing hope that a recent pickup in crude will be enough for them to dodge losses on energy-industry loans originally made when oil was at double today's prices. That's making them rethink whether maintaining corporate-banking relationships is worth the potential credit risks.
“European banks have been extending the debt for one or two years thinking that the market would repair itself, just like it did in 2009 to 2010,” said Alex Brooks, an analyst at Canaccord Genuity Group Inc in London. “It's clear that it's not going to happen.”
UniCredit sold about US$100mil of loans made to Prosafe SE, an operator of offshore-rig accommodation units, at a 55% discount, two people with knowledge of the matter said.
ING and ABN Amro Group NV have also talked to potential buyers in an effort to sell their exposure to the Oslo-listed company's US$1.4bil credit facilities, according to people familiar with the situations.
HSBC in recent months considered selling its loan exposure to Premier Oil Plc and lenders to driller Fred Olsen Energy ASA have been talking about selling their loans to potential investors, said separate people.
European banks have been slow to cut exposure to oil and gas companies, partly because borrowers in the region can better withstand lower energy prices compared with many of their US counterparts, who have higher expenses because they rely more on costly shale production.
Banks have only lent US$3bil to oil companies in Europe since April 1, set for the lowest quarterly tally in almost a decade, according to data compiled by Bloomberg.
Brent crude prices are hovering around US$50 a barrel even after jumping about 35% this year.
They were at US$115 a barrel two years ago, according to data compiled by Bloomberg.
Banks haven’t entirely abandoned the European energy sector. Premier Oil's lenders approved the debt-backed acquisition of EON SE's North Sea assets, chief executive officer Tony Durrant said last month.
Corral Petroleum Holdings AB, owner of Sweden's largest oil refiner Preem AB, got refinancing for US$1.6bil of revolving credit facilities in February.
Tullow Oil Plc's lenders renewed US$3.5bil of credit lines linked to oil reserves earlier this year even as the London-based oil explorer warned about possible loan-term breaches this year or next year.
HSBC considered selling about US$120mil of unsecured loans made to Premier Oil last month, according to two people familiar with the matter.
The debt, part of a US$2.05bil revolving credit facility, hasn’t sold because bids were below the offer price of about 65 US cents on the dollar, they said.
It got rid of loans made to Petroceltic International Plc at about 30% of face value in March as the Irish oil explorer filed for creditor protection in Dublin, people familiar with the matter said at the time.– Bloomberg