Petrofac, a London-listed oil services group with operations in Abu Dhabi and Sharjah, has had its debt rating cut to high-risk status after the Serious Fraud Office (SFO) in the UK announced last month that it is investigating the company as part of its wider examination into the dealings of Monaco-based oil consultancy Unaoil.
The move by Moody’s Investors Service to downgrade Petrofac’s debt rating one notch to Ba1 – or “junk” status – adds further pressure to Petrofac’s cost and ability to raise capital in the debt markets.
“While the outcome of the [SFO] investigation is uncertain, it could result in financial penalties that would negatively affect profitability if any allegations are proven,” said Scott Phillips, Moody’s Petrofac credit analyst. “The investigation, as well as the suspension of the group’s chief operating officer, could undermine the group’s reputational standing to the detriment of new construction orders,” he added.
Petrofac shares have collapsed since the fraud investigation, dropping by 54 per cent in the past month to 372 pence late yesterday.
Last week Petrofac said that Marwan Chedid, the chief operating officer, had been suspended until further notice following the SFO’s announcement that it was examining the company, its subsidiaries and employees for evidence of bribery, corruption and money laundering related to dealings with Unaoil.
Mr Chedid and the Petrofac chief executive Ayman Asfari had been arrested after the investigation was launched in May, although both were subsequently released without charge. Petrofac said Mr Asfari will stay on in his role but will not be involved in dealing with the SFO’s investigation.
In its report late on Wednesday, Moody’s cited the fact the SFO has said it did not accept Petrofac’s own investigation nor that the company had co-operated. The inquiry therefore, could go on for months, with the attendant uncertainty for Petrofac, and could end up with a fine “in the double-digit millions [of US dollars]”, Mr Phillips warned.
Petrofac is one of the industry’s biggest players and currently has a backlog of orders totalling US$14 billion.
Still, Moody’s says the investigation could damage Petrofac’s long-term reputation if it does not come out clean.
The investigation stems from an exposé last July in The Age, an Australian newspaper, which received a document dump from a whistle-blower indicating bribery and corruption at Unaoil. The inquiry has now extended to eight companies, most recently Wood Group, which earlier this week launched its own internal investigation. Wood Group is currently trying to complete a $2.8bn takeover of Amec Group, another oil services company.
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