WHAT culminated in Swissco Holdings' call on Monday to suspend interest payment for a S$100 million note issue could be the huge cash drain resulting from the idling of four jack-ups that were supposed to be on contract off Mexico, industry observers said. Cash flow problems at the offshore and marine player are said to have been compounded by the default on the charters for this quartet of jack-ups owned under a joint venture.
The Business Times understands that the four jack-ups went on contract through an intermediary with a Mexican state-owned oil company. The intermediary was said to have suspended payments to Swissco after the end-client stopped footing the bill.
Trouble has been brewing for Swissco's jack-up business for over a year now since the 2014 oil price collapse. Back in May 2015, a Malaysian business newspaper identified Swissco and its jack-up joint venture partner Ezion Holdings as being at risk as state-owned Mexican oil company Pemex cancelled orders.
Pareto Securities Pte Ltd chief executive David Palmer told The Business Times: "Pemex has terminated several rig contracts and suspended a number of leases with shallow-water jack-ups affected the most."
He would not be drawn to discuss Swissco's cash flow problems but added that while Pemex may look at "renegotiating contracts where it has the right to do so … the prospects for new work are dim to non-existent".
One equity analyst who does not wish to be named flagged "fresh debt of US$40 million" from a new liftboat which Swissco recently took delivery of. This new liftboat has not secured any work and added to the cash burn that comes with the low utilisation of Swissco's fleet of offshore support vessels, the analyst said.
Swissco acknowledged in an email to BT that one of its JVs has gone awry, but said this is in relation to arbitration proceedings pursued by its 50-per-cent-owned Star Excellence (HK) Ltd for an accommodation jack-up, not the JV with Ezion. The O&M player did not comment on the issues with the Mexican jack-up charters. Star Excellence is claiming US$26.1 million against charterers Tyloo for outstanding charter hire amounts, the company said in an Oct 12 SGX filing.
Swissco also said an informal steering committee that was formed for bondholders is "to work closely with the company and (adviser) Ernest & Young to develop a mutually agreeable restructuring plan with all stakeholders". "The company expects to be able to fund its current operations from its cash, revenue from existing businesses and possible asset disposals," it added.
Swissco's management acknowledged on Monday to noteholders that the firm would not be able to pay out a S$2.85 million coupon due soon this month.
Swissco had reportedly blamed the "Swiber effect" for the failed negotiations on the OSV deal. The two entities are intricately linked. Swiber, previously named Swissco Berjaya, has been a long-time associate of Swissco. The latter broke away as an independent entity after going for a public listing on the Singapore bourse in 2006. Even so, Swissco had pared its shareholding in Swiber through the past 10 years to just 1.36 per cent as at March 14, 2016.
Swissco's management had also undergone a major reshuffling. Mr Tan moved in to his current office after Alex Yeo stepped down as chief executive. Mr Tan and his family control the largest stake in Swissco.
Shares in Swissco last traded at S$0.052 on Monday the start of a trading halt. Trading is now suspended at the request of the company.