KCA Deutag - comment

KCA Deutag published their FY21 Annual Report broadly in line with our expectations, but with no call nor presentation until the end of May there is very little to update. The outlook remains positive but with c.25% of the business in Russia there is some geopolitical uncertainty. Pre Ukraine war, there was a strong expectation of a refinancing of the $500m 9.875% 2025 bonds given their relatively high coupon and currently $200m+ cash balance. Leverage is 1.6x currently (Pre IFRS 16 basis) and although the bond has some call protection, we are still of the view that the bond needs to be refinanced. The 2.5x incurrence test on the bonds restricts any future acquisitions, and despite the uncertainty over their Russian operations, we expect a refinancing during FY22.

KCA Deutag will start reporting their two engineering businesses under one umbrella from 1st January, and therefore we will update our model post the call at the end of the month.