Oxy to Sell New Shares to Cut Mounting Debt
Occidental Petroleum Corp. on Friday filed to sell 20 million shares of stock--its second offering in a year and a half--to raise money to help pay down debt that has grown by more than $400 million in a year.
The offering, to be completed by the end of February, would raise $560 million based on Friday’s closing price of $28. Occidental’s stock fell $1.25 in reaction to the news.
Oxy’s last stock offering came in June, 1988, when it issued 51 million new shares and raised about $1.3 billion. That was used to help pay down debt resulting from Oxy’s $2.8-billion acquisition of Cain Chemical Inc. the month before.
Occidental now has 270 million shares outstanding.
Analysts said money from the new offering would help pay down debt that grew to $8.2 billion at the end of the third quarter of 1989 from $7.6 billion at the end of 1988. Oxy’s debt increased in part to meet $410 million in contract obligations by its MidCon Corp. natural gas subsidiary, an Occidental spokesman said.
Richard Pzena, an oil industry analyst with the investment firm of Sanford C. Bernstein & Co. in New York, said Occidental’s cash flow dipped slightly in 1989 and was not sufficient to meet its dividend obligations, capital spending program and debt payments.
“Their cash flow was about $1.6 billion last year, and they have a $675-million dividend obligation and capital spending program in 1989 of about $1.3 billion, so they’re a little short of their cash needs,” Pzena estimated.
The spokesman for Occidental denied that the company has cash-flow problems or that the offering signals any trouble with its debt management.
“It’s a continuation of a policy” to raise equity through public offerings, said Howard C. Mount, an analyst with the investment firm of Duff & Phelps Inc. in Chicago. “It will help Oxy to solidify its balance sheet somewhat.”
Los Angeles-based Occidental filed a registration statement with the Securities and Exchange Commission in Washington. The Salomon Bros. investment firm in New York will serve as the lead manager of the public offering.
