Capital Structure and Equity
The primary focus of BW Offshore’s financial strategy is to ensure a healthy capital structure to support its business, fulfil all financial obligations and maximise shareholder values.
BW Offshore (“Group”/”Company”) also monitors and manages its capital structure in light of changes in the economic conditions. To maintain or adjust the capital structure, the Group may adjust dividend payments to its shareholders, return capital to shareholders or issue new shares.
Construction and conversion projects will normally be funded through current loan facilities and/or specific project loan facilities equalling 70-80% of the cost of the project. Project loan facilities can be established either before a contract for the conversion project is signed, during the conversion phase of a project or when the FPSO commence operation.
The Group has also issued bonds in NOK and will consider to continue to do so when the market is attractive and if it provides competitive funding as an alternative to traditional bank financing. The Group placed a convertible bond in 2019 and has now more diversified sources of funding.
The Company has no specific targeted equity ratio. However, the loan facilities of the Group have certain covenants related to equity and equity ratio, both closely monitored by the Company.
BW Offshore’s risk exposure is analysed and evaluated to ensure sound internal control and appropriate risk management based on BW Offshore’s values, policies and code of ethics. The Group is exposed to a variety of financial risks: market risk (including currency risk and price risk), credit risk, liquidity risk and interest rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The most important operational risk factors are related to the operation of FPSOs and the execution of projects, accidents on the units and oil spills to the environment.
On a fleet wide basis, the Company takes out insurance cover for its crew and support staff, pollution and clean up, damage to vessels, on some units loss of income and third-party liabilities. The insurance also covers losses resulting from acts of war and terrorism. Cover for oil pollution and oil pollution caused by war and war-like actions are limited per incident. BW Offshore’s operational activities are subject to tax in a number of jurisdictions. As contracts with clients are long term in nature, the Group’s results are exposed to risk of changes to tax legislation. Risk management is described more comprehensively in the notes to the consolidated financial statements.
BW Offshore’s central finance division has the responsibility of financing, treasury management and financial risk management. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.
A finance management team, lead by the Chief Financial Officer, identifies and evaluates financial risks in close co-operation with the Group’s operating units. The finance management teams activities are governed by policies approved by the Board of Directors for overall risk management, as well as policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, and investing excess liquidity. The finance management team will report to the Group’s Senior Management, the Audit Committee and the Board of Directors on the status on activities on a regular basis.
BW Offshore does not use financial instruments, including financial derivatives, for trading purposes.