EM CEEMEA CREDIT: DNONO: USD 300mn min 60NC5.5 hybrid - FV

DNO ASA (DNONO: -/-/-) -  New Issue

USD 300mn min 60NC5.5 hybrid

IPT: 10.75%-11%

FV: 10.75%

• DNO back in the market for a 60NC5.5 hybrid bond. A non-rated entity issuing a hybrid bond, we assume this to adhere to covenants on existing bonds. For our FV analysis we use recently issued USD500mn 8.5% 5NC3 in Mid March which is around 8.5% yield. There are not many comp’s out there, and the sub-senior differential can vary anywhere between 100-250bps depending on the credit profile. We use a senior sub spread differential of around 200bps based on a credit profile of BB/BB- and adjust for slightly longer call date and estimate a FV of 10.75%.

• Post the acquisition of Sval Energi, DNO expects production to be boosted by two thirds to around 140k boepd and increases 2P reserves by 50% to 423mn boe. Based on mgt est on a pro-forma basis the acq is expected to increase EBITDAX from USD422mn to USD1.85bn and cash flow from operations from USD432mn to USD997mn.

• DNO ASA is not rated by any of the agencies but based on post-acquisition financials on a standalone basis we view the company as a BB/BB- credit applying Moody’s methodology for independent E&P companies. DNO operates in the Kurdistan region of North Iraq and West Africa (hence our EM coverage) as well as the North Sea. Prior to the acquisition DNO had a conservative balance sheet with more cash than debt and leverage and coverage ratios not relevant. However, the capital structure will change with the acq and given the size of the company, the overall credit profile of the co will improve.