Battered mining services companies in Australia face an uphill battle to pay back debt amid signs the sector has hit rock bottom.
Over the next four years, Australian mining services companies are looking at a huge refinancing load, with about $1.7 billion ($A2.38 billion) of lump-sum debt payments due before 2019, ratings agency S&P says.
“Given the trading conditions in the market it will be a stretch for them to have favorable terms in their refinancing instruments or to successfully extend or refinance their debt,” S&P analyst May Zhong told AAP.
S&P forecasts show mining services issuers may find it challenging to generate enough cash to pay back maturities under current market conditions.
The agency has downgraded several Australian mining services providers over the past 18 months following steep falls in commodity prices and says the negative bias is likely to persist until the mining sector turns.
Barminco has the highest amount of speculative-grade bond maturities at $485 million while Boart Longyear’s debt pile totals $300 million. S&P has placed Boart Longyear, EMECO, BIS, Barminco and Onsite Rental Group on negative outlook while Ausdrill, Transfield and CIMIC are on a stable outlook.
Ausdrill and Barminco had experienced less earnings volatility because they were more diversified, but they were not immune to the downturn in commodity prices.
Mining services companies had limited growth prospects as mining projects were shelved, S&P said.
Still, some mining services companies had adopted innovative survival strategies with their mining customers and even become a source of equity, the ratings agency said.
“Coupled with business diversity in some cases and capital flexibility, these innovative efforts have kept mining services companies afloat so far,” S&P said.
Struggling iron ore miner Atlas Iron’s contractor-collaboration agreement would allow mining services companies to share in profits once prices rebounded.
S&P also noted that mining services companies’ cash needs had been reduced and they were operating without drawing down their revolving credit facilities.
The agency added that recent refinancing transactions such as Fortescue Metals Group’s bond issuance had seen a premium paid for facilities.
