Seadrill at Mercy of Day Traders as Biggest Funds Dump Stock

(Bloomberg) -- Seadrill Ltd., once the crown jewel of billionaire John Fredriksen's business empire, is now at the mercy of short-term speculators as the biggest funds avoid the offshore driller amid a struggle to avoid bankruptcy.

“It's trading at option value and day traders are the ones pushing the price up and down,” Anders Bergland, an analyst at Clarksons Platou Securities AS, said after the company on Tuesday again warned shareholders and bond investors they faced steep losses in any restructuring deal. “There are no funds buying this right now, it's trading.”

Seadrill fell for a third straight day Thursday, hitting a new intraday record low of 5.85 kroner a share. The stock was down 4.4 percent at 6 kroner as of 10:02 a.m. in Oslo. That followed a 38 percent drop on Tuesday and 28 percent fall on Wednesday.

The company has been working on a restructuring of the offshore-drilling industry's biggest debt load for more than a year. With net interest-bearing debt of $8.9 billion at the end of 2016, Seadrill has been particularly exposed as oil companies slashed spending following the collapse of crude prices in 2014.

‘Train Wreck'

The risks of equity dilution and bankruptcy had been voiced by the company earlier and should in any case have been “obvious,” said Alex Brooks, an analyst in London at Canaccord Genuity Group Inc. who stopped covering Seadrill last month after following the stock on and off for nearly eight years.

“We seem to see this over and over again: shareholders are willing to trade stocks on hope value right up until the moment the train wreck becomes obvious,” he said in an email. “It's astonishing, and probably reflects rather badly on people like me who are unable to get our message out.”

Seadrill has lost 97 percent of its value since the middle of 2014, contributing to a more than 40 percent drop in Fredriksen's net worth, which is currently estimated by the Bloomberg Billionaire Index to be about $9.7 billion.

The biggest sellers of the shares last year included Barclays Plc, JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank AG, according to data compiled by Bloomberg.

The company said on Tuesday it got further extensions on bank loans totaling $2.9 billion, allowing it to again postpone the deadline for a restructuring deal by three months to the end of July. Warning shareholders they faced “minimal recovery” of their positions, Seadrill said a comprehensive agreement with creditors would “likely involve schemes of arrangement or chapter 11 proceedings,” eventualities that had previously been mentioned by the company in case a deal was not reached.

The announcement was “largely expected,” even if Seadrill shares rallied more than 20 percent in the week that preceded it, said Sondre Stormyr of Danske Bank.

“The most surprising thing to us recently is that the stock bounced back a bit, implying a flawed representation of the restructuring power between equity, bondholders and potential new money investors,” he said in an email. “This is now sharply correcting, which is fair.”

Fredriksen, a Norwegian-born Cypriot who acts as Seadrill's chairman and owns about 24 percent of the company, said last week the company was getting closer to a restructuring agreement, though it was a “big job.” He repeated that in an interview with Dagens Naeringsliv on Tuesday, adding Chapter 11 bankruptcy protection was only one option among others and that how much capital he puts into the company will depend on the solution.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net.

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar