Shares in oil services group Petrofac LON:PFC are continuing to take a battering, currently down over 62% on a year to date basis.
Petrofac management does not seem capable of turning its fortunes around at the moment. Although the company’s shares have now been restored to trading in London, several hedge funds have been building short positions on the stock in the last few months.
Petrofac shares started the year at just under 40p but have since traded down to 12.65p. Petrofac delayed publication of its results, leading to the shares being suspended temporarily in April. When the shares returned to the market, there was a small rally which took them off the 10p level that they had descended to.
“Petrofac has failed to generate a concrete plan to restructure the business and shore up the balance sheet,” Hargreaves Lansdown said in a note to investors. “As a result there are now pressing concerns about the company’s ability to survive. Even if the situation is resolved, paying its lenders in shares rather than cash is a distinct possibility. That would mean investors’ ownership of the company would be significantly diluted.”
Petrofac designs, builds, manages and maintains oil, gas, refining, petrochemicals and renewable energy infrastructure. It’s been making solid progress in rebuilding its order book and sales pipeline. But what investors really want to see is a return to profits and cashflow, and progress on that front has so far been disappointing.
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Who is shorting Petrofac shares?
Petrofac stock is now being heavily shorted by hedge funds. Among the leading shorters is Astaris Capital Management, along with Helikon Investments and Millennium Capital Partners. Hedge funds have been rapidly ramping up their short positions in Petrofac since the start of the year.
London-based Astaris Capital Management is an event-driven hedge fund led by Martin Beck who has been CIO at the fund since 2020. The hedge fund specialises in catalyst-driven opportunities across the capital structure of companies, being happy trading both credit and equities.
So what now for Petrofac?
The big question for investors is still how the company is going to be able to manage its debt levels. CEO Tareq Kawash has already pointed to the fact that Petrofac has been taking additional losses on its legacy contract portfolio. The company is now undergoing “a critical financial restructure” although we wait to hear what that will look like.
Can Petrofac be saved in its current form? On the upside the company still has assets which it could sell to balance its books. It has also said it has a strong order intake of USD 7.1bn. Much is now going to depend on what sort of restructuring plan Kawash and his team are able to deliver.
