>Aban Offshore (GOLDMAN SACHS)

What's changed: We are terminating coverage of Aban Offshore (Aban) to better focus our resources. Our estimates and target price are unchanged and our final rating on Aban is Neutral.

Aban needs to re-finance about US$169mn of existing debt in FY10E, and US$148mn out of that before December 2009 in order to honour the bullet payments of Norwegian Kroner bonds (from Sinvest) due December 22, 2009. This has become the key issue for Aban since it has limited options to raise finance by any other means in the current environment, in our view. Moreover, four of Aban’s assets are currently lying idle owing to major cutbacks in E&P capex globally. Contracts to another four of Aban’s assets will conclude over the next six months, increasing the risk of even lower asset utilization and pushing up the amount of re-financing needed.

Our final earnings estimates for FY09E/FY10E/FY11E are Rs180.6/Rs267.2/Rs221.4. We have observed compression of EBITDA margins in 3QFY09 primarily due to a rise in costs and lower utilization.

Implications: We believe Aban’s stock is now effectively a binary option, with part of the street believing Aban’s cash flows will weaken to a point where refinancing will look difficult. We, however, believe it is possible for Aban to secure refinancing, although this could be expensive given the current environment. News-flow on this remains critical for a re-rating of the stock, in our view.

Valuation: Our final rating on the stock is Neutral with a P/B-based 12-month target price of Rs475, implying upside potential of 100%.

To see full report: ABAN