The bond market is freaking out about the wrong oil companies.
Investors are worried about US producers, but it’s the emerging market oil producers who have bigger financing needs, according to Societe Generale analysts Guy Stear and Juan Esteban Valencia.
They highlight the chart below, which shows bonds and loans due in the US dollar high-yield energy sector by region of issuer. As you’ll see, emerging markets make up the bulk of the issuers.
“The chart reinforces our view that the biggest short-term refinancing problems lie with EM oil companies,” the note said.
Here is the key paragraph:
Redemptions are not the only way a company can go bankrupt, of course, but given that the operating cash flow of the oil companies is still positive, we do think that redemptions and interest payments are an important part of the analysis of the sector for the year to come. And we do still think that the outlook for the US high yield market is better than the outlook for the EM high yield market — even though markets are not pricing things that way at the moment.
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