Oil and gas producer EnQuest’s (ENQ) retail bond is trading at a discount for the first time, but this is not a buying opportunity.
EnQuest 5.50% 15 February 2022 (ENQ1) can be bought for £90.40, some 10% less than the par value the paper will redeemed at when it matures. The lower price has boosted its yield to maturity (so if held for the next eight years) to 6.9%.
The price has fallen from its 105.6p high (25 Mar) and a 4.7% yield as investors sell the bond on fears EnQuest could struggle to pay its unsecured bond’s 5.5% annual interest rate as oil prices fall and debt rises as it seeks to expand production.
Brent crude oil fell 9.5% in October alone and currently trades at $85.70 a barrel, unless this price rises there is a risk EnQuest could breach covenants on its $1.7 billion bank debt.
Analysts at Swiss bank UBS forecast that the oil price falling to $80 could wipe 25% of oil companies’ net asset values.