CQS RIG FINANCE FUND LIMITED
Quarterly Shareholder Fact Sheet
[For release on 29th April 2008]
CQS Rig Finance Fund Limited (the "Company") a closed-ended investment company
incorporated in Guernsey, is pleased to announce that its Quarterly Shareholder
Fact Sheet for the period 1st January to 31st March 2008 is now available on
the Company's website: www.cqsrigfinance.com
The investment manager's commentary in the Fact Sheet is as follows:
The Company's ordinary shares produced a net return of -7.01% for the first
quarter of 2008, bringing net returns since inception to +3.75%. The ordinary
share price closed at 95.75 pence on 31st March 2008 against a closing price of
105 pence on 31st December 2007. A fourth dividend of 1.98 pence was paid on
18th March 2008 bringing the annualised net return since inception to +2.91%.
Although the fundamentals underpinning worldwide exploration and production
continued to be robust, the performance of the Company's portfolio during the
first calendar quarter of 2008 was impacted by continued dislocations in global
credit and equity markets as well as an announcement by Viking Drilling ASA of
its intention to file for Chapter 11 bankruptcy protection.
During the first quarter, the crude oil supply/demand imbalance persisted as
supply concerns continued. Although volatile during this period, WTI crude oil
prices rose to new record highs hitting US$110.21 per barrel on 13 March 2008
and traded at an average US$7 higher than the average in the previous quarter¹.
The latest IEA projected global oil product demand in 2008 is little changed at
87.5 million barrels per day, with downward pressures from weaker economic
growth in the OECD mostly offset by stronger FSU (demand) projections².
In the financial markets, the first quarter of 2008 was marked by continuing
dislocations in the credit markets and turbulence in the wider financial
markets. The effects have been to drive financing costs higher for companies
and the general decline in asset prices was exacerbated by forced selling in
many asset classes. The secured bonds in which the Company invests were not
immune to these market disruptions but, given the environment experienced
during the first quarter, we believe that the portfolio held up relatively
In general, with the turmoil in global financial markets, there appeared to be
a flight to quality in the offshore oil bond market. Consequently, bond
financing projects with lower perceived construction risk and/or with drilling
contracts outperformed those where the construction was perceived to be more
risky and/or the units are being built on a more speculative basis.
The performance of the Company's portfolio was impacted by the Viking Drilling
ASA announcement relating to its intention to file for Chapter 11 bankruptcy
protection in the US. The Company's interest in instruments issued by Viking
Drilling ASA totalled approximately £7.1m post announcement (or 7.3p per
ordinary share)³. Of this total, approximately £5.7m (5.8p per ordinary share)
having 1st lien security and £1.4m (1.5p per ordinary share) having 2nd lien
security. The Company subsequently announced on 12 March 2008 that about 94% of
the par value of the 2nd lien was recovered.
More broadly, the market for mid-water and deepwater drilling rigs remained
strong due to an undersupply of vessels in this sector. Several high profile
contracts were awarded during the first quarter at high day rates providing
visibility out to 2015. Most recently, one of the Company's holdings, MPF
Corp. Ltd, was awarded a three year contract by Petrobras with a total contract
value of US$630m. The shortage of drilling rigs and sub-sea solutions has led
to delays in field development with consequent delays in the requirement for
production and storage infrastructure and this is causing some softening of
bond prices to the FPSO sector. This is particularly true for the units being
built "on spec".
Spreads for US$-denominated bonds were generally wider than for NOK-denominated
bonds. We believe this was due to the relative decline in US$ Libor versus
Nibor, which negatively impacted yields on US$ paper.
We continue to believe the Company's portfolio to be well positioned to capture
the progression of the offshore oil and gas services investment cycle, with
holdings across a number of sub-sectors including drilling rigs, seismic
vessels, floating production units and sub-sea infrastructure.
Whilst it is always disappointing to record a declining NAV, the future outlook
for E&P expenditures suggests a healthy environment for oil and gas
infrastructure investment. We believe the fundamentals supporting the Company
remain robust and that it will be able to achieve its target annualised gross
dividend yield of 8% as outlined in the Company's admission document dated 11
December 2006, noting that at the end of the quarter the lowest coupon on bonds
held by the Company was 7.32% and the highest was 12.26% (annualised based on
the last fix for floaters).
¹ Source: U.S. Energy Information Administration
² Source: International Energy Agency - Oil Markets Report March 2008
All share price data sourced from Bloomberg
³ Source: CQS Rig Finance Fund RNS announcements
For further information, please contact:
Ann Spelman Alastair Moreton
Secretary Director, Corporate Finance
Kleinwort Benson (Channel Islands) Arbuthnot Securities
Fund Services Limited 020 7012 2000