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Aberdeen sniffs a bargain as debt panic hammers Singapore banks

37504090.1 (37996495) - 07_04_2016 - pixbanks.jpg
The recent drubbing in Singapore bank stocks is turning Southeast Asia's biggest lenders into bargains for money managers including Aberdeen Asset Management Plc.

[SINGAPORE] The recent drubbing in Singapore bank stocks is turning Southeast Asia's biggest lenders into bargains for money managers including Aberdeen Asset Management Plc.

DBS Group Holdings Ltd lost S$3.6 billion in market value in seven days from July 28 when its client Swiber Holdings Ltd signalled it was in financial trouble.

DBS's two smaller domestic rivals slid at least 5 per cent. With bank stocks priced near their cheapest since the depths of the global financial crisis, Nader Naeimi of AMP Capital Investors Ltd says it's time to buy, while Aberdeen's Hugh Young says they'll prove resilient to any debt exposure.

"The banks are strong and valuations are reasonable, backed by decent dividends," Mr Young, Singapore-based managing director at Aberdeen, which oversees about US$420 billion, said by e-mail.

"Generally, they're a buy. There will be other Swibers so it is a risk. If you wait until the problems are sorted, the prices would have moved. It's not an easy call, but at these levels, a fair chunk of bad news is in the price."

The fallout from the energy-services firm's troubles add to the struggles facing Singapore's lenders as they navigate their exposure to energy-related companies amid spending cuts by explorers and an economy estimated to expand at the slowest pace in seven years in 2016. That's weighed on the island nation's equities this year, the worst performers among major Southeast Asian peers after Malaysia, and the only country in the region where earnings are projected to shrink in the next 12 months.

DBS is down almost 10 per cent this year and is trading at the lowest level since January 2013 relative to the MSCI Asia Pacific Index. The Singapore bank is valued at 0.9 times net assets, below the multiples for United Overseas Bank Ltd and Oversea-Chinese Banking Corp, data compiled by Bloomberg show. Shares of UOB have fallen 7.9 per cent in 2016 while OCBC has declined 3.5 per cent.

"Banks are a great buying opportunity at these levels," said Naeimi, Sydney-based head of dynamic markets at AMP Capital, which oversees about US$120 billion.

"Most of the bad news is priced in." 

Court Supervision

Swiber, facing about US$50.5 million of demands last month from various creditors, said July 29 that it's seeking to operate under court supervision as it attempts to turn around its business. Two days earlier, it had filed a petition for liquidation, which was dropped following talks with lenders.

Swiber's woes are the latest example of the difficulties engulfing the oil industry since crude prices plunged more than 50 per cent in two years and forced explorers such as Royal Dutch Shell Plc and Statoil ASA to cut spending.

The rout in commodity shares and Singapore lenders dragged the benchmark Straits Times Index to 1.1 times book value, compared with 1.4 for the MSCI Asia Pacific Index. That's the biggest discount since the financial crisis.

Not everyone is rushing to buy bank shares just yet.

"The defaults in the energy sector are just starting so it's still too early to nibble," said Kar Tzen Chow, Kuala Lumpur-based fund manager at Affin Hwang Asset Management Bhd, which oversees about US$7.6 billion.

"The discount reflects the fundamental outlook for Singapore, with global growth and external demand remaining weak."

Swiber Exposure

DBS said on Monday that second-quarter profit declined 6 per cent as provisions for Swiber overshadowed gains in interest and fee income. The bank's exposure to Swiber amounted to S$721 million, according to a presentation accompanying its results. Chng Sok Hui, DBS's chief financial officer, said at the briefing that she expects to recover more than S$320 million of the bank's total exposure.

Swiber is an "idiosyncratic" case as its financing is secured against working capital rather than physical assets, unlike other Singaporean companies in the same industry, DBS chief executive officer Piyush Gupta said.

The Straits Times gauge is down 0.4 per cent in 2016. Shares on the measure trade at 13 times 12-month projected earnings, below the 10-year average multiple of 13.3.

"The Singapore equity market definitely interests me," said AMP's Naeimi.

"Bank valuations offer a good buffer against bankruptcies in marginal oil services players."