SINGAPORE: More consolidation is expected in the offshore and marine sector, following recent developments in embattled offshore services firm Swiber, according to market watchers.
Last Friday (Jul 29), Swiber said it plans to restructure and operate under judicial management, after withdrawing earlier liquidation plans. Analysts said this is likely to have wider reaching implications for other industries in Singapore.
Swiber's latest decision to be placed under judicial management gives it time to restore its financial health while under supervision of Singapore courts.
On Friday, Swiber also revealed its subsidiaries had received more letters of demand, bringing the total sum of claims to US$50.5 million (S$68 million).
According to its latest quarterly accounts, the company had US$1.43 billion of liabilities and US$1.99 billion in total assets on Mar 31.
Market watchers said the offshore services firm had already shown signs of weakness a year ago, such as stretched balance sheets amid a surge in orders when oil prices were high, and funding was easily available.
“The strains were obvious when oil prices plunged almost 50 per cent from its high,” said Mr Nicholas Teo, a trading strategist at KGI Frasers Securities. “When it has stayed down for an even longer time frame than expected, it is starting to prove fatal for borrowers, especially for those with weak balance sheets."
One analyst cited concerns over transparency in the wider industry.
"If you look at Swiber's case, they mention they have very huge orders amounting to up to S$700 million - and this accounts for 70 per cent of their orders - but there's really very little information about who (are they for), and (their) duration,” said Mr Terence Wong, CEO of Azure Capital. “So I think SGX (Singapore Exchange) will clamp down on such companies and I think they'll force companies to be a lot more transparent if they've not really done so."
Meanwhile, provisional liquidator Cameron Duncan announced on Monday that Swiber is unable to meet an upcoming coupon payment due on Aug 2 for a 6.5 per cent bond due in 2018. The S$150 million 6.50 per cent certificates were issued by its subsidiary Swiber Capital Pte Ltd.
Going forward, market observers said more offshore and marine firms are expected to take a hit.
Mr Wong said: "When the news broke, it sent shock waves across both the market as well as the industry. So you can see people selling down and this is only the start. Because there will be some other usual suspects, some that are often named together with Swiber, that will get hit, either in the market, or through the banks."
Already, the impact is spilling over into other industries, including banking.
OCBC said that while none of its borrowers have abandoned their operations, it has been making an effort to help firms in the industry to deleverage.
"In a situation like this where oil price is beyond the control of anybody - neither the charterers, nor the oil majors, nor the support service companies - the only way you can protect their exposure to themselves, to maintain their business and protect the banks’ exposure, is to work together to help them to deleverage,” said Mr Samuel Tsien, Group CEO of OCBC Bank.
He added: “Deleverage could be in the form of raising additional equity, selling part of the assets, inviting partners to come in, disposing personal assets and injecting the money into the company, or (if) some companies decided to privatise their company, so that their family assets could be put into the company which was originally public-listed. These things are showing very good results.
"During the second quarter, we actually have got customers who have been able to upgrade from substandard to higher grade because they've been performing for five quarters.”
DBS said its exposure to Swiber Group totalled about S$700 million, while UOB said its exposure is "manageable". Singapore banking shares have dipped by up to 6 per cent since the middle of last week.