Impairment of fleet values as per Q3 2018
23.01.2019, 08:17:55 pm
Reference is made to the interim financial report for Solstad Offshore ASA (“SOFF”) for Q3 2018 as announced on 06.11.2018. At the time of the report, SOFF considered that it was not necessary to carry out an impairment test with respect to SOFF’s fleet values, as they were supported by independent broker valuations and the values realized from historic vessel sales. Accordingly, no impairment charge was recognized in SOFF’s Q3 2018 reporting. However, the Q3 2018 report highlighted that the vessel book values and shareholders’ equity were expected to be under pressure going forward.
In a decision dated 19.12.2018, Finanstilsynet expressed that SOFF should have given more weight to its price/book ratio and to the challenging market situation. On that basis, Finanstilsynet requested SOFF to carry out an impairment test of SOFF’s fleet by calculating its recoverable amount as per Q3 2018.
SOFF has therefore carried out an impairment test as of Q3 2018 in accordance with Finanstilsynet’s requirement. The test indicates that an impairment of fleet values of NOK 850 million should be recognized as per Q3 2018. The impairment mainly derives from:
- An expected delay in the market recovery
- An increase in SOFF’s estimated weighted average cost of capital to 9.3%
In the Q4 2018 interim financial report, SOFF’s Q3 2018 numbers will be restated to reflect the said impairment. As per 30.09.2018 SOFF’s revised consolidated net loss for the period from 01.01.2018 until 30.09.2018 will be increased from MNOK 1,790 to MNOK 2,640, and its revised shareholder’s equity at 30.09.2018 will be decreased from MNOK 3,326 to MNOK 2,476.
As per year-end 2018, there were indications of further delay in the expected market recovery, adversely affecting expected long-term utilization and charter rates. Furthermore, there was a significant drop in the oil price in the fourth quarter. On this basis, SOFF considers that there is a risk of further impairments of fleet values to be recognized in the Q4 2018 accounts. However, these calculations are not yet finalized. Such an impairment will put the book equity at risk.
On 20.12.2018 SOFF announced that a number of the financial creditors of SOFF have agreed to a suspension and deferral of payments of principal and interest under a number of loan agreements until 20.06.2019.
Following the agreement to suspend payment of principal and interest, SOFF will, in the months to come, continue its close dialogue with its financial creditors with an ambition to find a long-term solution to its financial situation. The solution is expected to involve a comprehensive restructuring of SOFF’s balance sheet. Further updates will be provided in due course.
The SOFF group otherwise continues its operations in its ordinary course.
Skudeneshavn January 23rd, 2019
Anders Hall Jomaas CFO, at +47 40 04 29 18