m Chennai Based offshore oil drilling company

m Established in 1986.
m Largest in India and 10th largest in the world.
m Currently possess 20 offshore production and
drilling equipment.
m !ban offshore¶s D/E changed from 2.92 in march
2006 to 3.76 in march 2007.
m Competitor¶s change in D/E in same period
3 J
C from 0.24 to 0.24 itself.
3
!IL from 0.19 to 0.12
3
ujarat State Petronet from 0.63 to 0.89
3 Petronet L
from 1.18 to 1.08
3 Reliance atural Resources was at 1.04
m During 2006 !B! acquired orwegian drilling
major Sinvest, at a cost of $ 2.2 billion.
m The acquisition was financed partly through debt,
with a debt of $3.1 bn, by borrowing from a clutch
of banks and partly through bonds worth $207 mn.
m In spite of the increase in share price, the huge
debt kept the D/E ratio high.
J 
 !"# ë

^ $
#
 




ujarat
!
 State Petronet



Companies 
J

 Petronet L


D/E    0.89 1.08 

    

W!CC      

  

Rd      

    

Re      
m The Jptimal D/E ratio was calculated and found to be 3.76
.The W!CC value was also calculated and found to be
1.465626.
m During the year 2008, the recession hit and the oil prices
fell sharply, from $147 to $40 per barrel. This had a
negative impact on their shares which fell sharply.
m The fact that Sinvest rigs were on short-term contracts also
had the potential to cause problems for the company in the
future.
m Company had disappointing results in the third quarter of
2008-09. In 2009, it told its banks to moderate or change its
huge debt repayment schedules.
m The expected rate of return on the common stock of a
levered firm increases in proportion to the D/E ratio.
Let us take the case of !ban offshore.
m If D/E=0, then
m Re=Ra = (expected operating income)/(market value
of all securities)
m =247.57/3747.93
m =O

m If D/E=3.76, then,
m Re=Ra+(Ra-Rd)*(D/E)
m =6.25+(6.25-0.06973149)*3.76
m =29.4878096
m !lso on 14th May 2010, !ban's offshore rig, the !ban pearl sank
off the Venezuelan cost prompting its share prices on BSE to fall
by 17%.
m Even though !ban later received most of its insurance claim
amount leading to an increase in share prices again, analysts are
not upgrading the stock yet.
m !ban's shares have not been able to come up to its 2008 levels
and there are still concerns about !ban¶s ability to service its
loan payments even after debt re scheduling.
m However management has allayed such fears and has said that
Indian banks are ready to refinance loans coming up as bullet
payments.
m !lso, Indian banks are more willing to extend tenure, rather than
take possession of rigs and sell them as !ban has a predictable
cash-flow-backed business.