Vallourec Seeks Capital as Oil Prices Pummel Earnings

PARIS—Vallourec said on Monday that it plans to raise about €1 billion ($1.08 billion) in fresh capital through new shares and convertible bonds as the company braces for widening losses in 2015 on falling demand from oil companies for drilling equipment following the oil-price collapse.

Japanese steelmaker Nippon Steel & Sumitomo Metal and French state-owned bank BPI will participate in up to half of the capital increase, Vallourec said. The company, which manufactures steel pipes mainly for the oil industry, will raise as much as €445 million on the stock market.

At the end of the process, Nippon Steel & Sumitomo and BPI will each own 15% in Vallourec. Both partners would pay €11 for each Vallourec share, a 44% premium over its three-month average price.

Vallourec's situation illustrates how oil-industry suppliers sometimes suffer more than oil companies from the price environment as some major oil companies have found profit sources in the refining or petrochemical industries to offset plunging revenue from oil production.

Chief Executive Philippe Crouzet said the company will report a net loss this year and won't pay any dividend next year.

Fellow French oil services company CGG SA raised €350 million in fresh capital on the market to cope with the difficult market conditions.

Vallourec shares have lost 79% of their value in a year to €4.05, bringing down the company's market capitalization to €641 million.

The seamless steel pipe maker also announced plans to boost its profitability by cutting capacity in Europe by 50%, will merge its Brazilian unit with the one from Nippon Steel & Sumitomo in the country. The company will also acquire a controlling stake in Chinese rival Tianda Oil Pipe and will boost its activities in that country.

The company expects the different operations will lift its earnings before interest, taxes, depreciation and amortization to a range of €1.2 billion to €1.4 billion in 2020.

Write to Inti Landauro at inti.landauro@wsj.com

(END) Dow Jones Newswires

February 01, 2016 02:45 ET (07:45 GMT)

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