DBS chief Gupta defends decision to extend lifeline to Swiber

[SINGAPORE] DBS Group Holdings Ltd's top executive defended his bank's decision to throw Swiber Holdings Ltd a S$197 million lifeline, indicating the lender was caught off guard by the speed at which the energy-services company collapsed in recent weeks.

Speaking to reporters after the Singaporean bank's earnings report, DBS chief executive officer Piyush Gupta said he had personally checked up on Swiber's financial health three months ago. He said the bank had spoken with a would-be investor to ensure an equity injection would be coming before deciding to extend bridging loans in June and July to the oil-services company, which is now under court supervision.

"The problem is Swiber imploded in six weeks," said Mr Gupta, 56. "Between the end of May through mid-July, people said you should have known - but none of the indicators were showing."

Other lenders to the company also hadn't classified it as nonperforming, he said.

Questions about Swiber, which provides construction services for international oil and gas projects, dominated the briefing, which came after DBS reported a 6 percent decline in second-quarter profit to S$1.05 billion. The S$150 million of provisions DBS declared to cover losses related to Swiber overshadowed gains in interest and fee income for the period, the bank reported in an exchange filing Monday.

"The episode does raise questions about the bank's approach towards risk management, particularly on concentration risk within troubled sectors, but on balance, Piyush explained the situation well enough," said Christina Woon, an investment manager in Singapore for Aberdeen Asset Management Plc, which holds DBS shares.

"While the Swiber episode has been less than ideal, DBS remains a well-capitalized and well-diversified bank."

Singaporean banks' loans to oil and gas-services providers have been in the spotlight since Swiber sought to liquidate its operations after facing payment demands from creditors, a plan it subsequently dropped in favor of judicial management. That allows the firm to continue business under court supervision while it attempts to turn itself around.

The bridging loans extended in June and July are part of DBS's S$721 million exposure to Swiber, according to a presentation accompanying the bank's results.

Swiber is an "idiosyncratic" case as its financing is secured against working capital rather than physical assets, unlike other Singaporean companies in the same sector, said Mr Gupta, who has led DBS since November 2009. DBS has an exposure of S$403 million to finance working capital for Swiber related to two projects, one of which is 80 per cent finished, while the other is 40 per cent complete, according to Mr Gupta.

"It's a classic banker's dilemma, with expectations that it would ring-fence the projects and get the projects done," said Mr Gupta. "When you go through these things, it's not an unreasonable decision to make as we would get this US$400 million back. This is the kind of bank we are, we don't pull the plug on customers."

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. The amount the bank set aside for Swiber boosted specific allowances, or provisions for bad debts, to S$336 million in the June quarter, up from S$132 million a year ago, the lender said.

When asked about the chances of recovering its loans, Mr Gupta said: "We have to nail it down." The bank will "have a dialogue" with Swiber over the next couple of weeks, he said.

DBS and its two largest domestic rivals, Oversea-Chinese Banking Corp and United Overseas Bank Ltd, are exposed to the downturn in the energy sector as a result of their lending to local companies which provide construction, shipping and maintenance services to the oil and gas industry. Many of those companies are suffering as the plunge in crude prices since 2014 curtailed exploration and other activity by oil and gas producers.

Moody's Investors Service warned Thursday that funds the Singaporean lenders had set aside to cover souring energy exposures aren't enough.

In the oil support-services sector, DBS had a total exposure of S$7 billion to companies other than Swiber. Of that, S$2.3 billion was to five oil-services companies, one of which "has weakness," the presentation said. Another S$2.7 billion was loaned to 90 companies, where one-third of the portfolio has weakness, according to the presentation. It didn't identify the companies and Gupta declined to give specific names at the press briefing.

DBS shares closed 1.5 per cent higher at S$15.04 on Monday, paring this year's loss to 9.9 per cent. The benchmark Straits Times Index lost 0.4 per cent in 2016.

BLOOMBERG