Marco Polo Maritime sailing into rough seas

Singapore

IT'S rough out there; two weeks after marine logistics firm Marco Polo Marine assured the stock exchange regulator that there was no need to suspend trading in its stock, those remarks proved to be cold comfort after the company went ahead and did exactly that.

The news is likely to burst open festering wounds in the oil and gas services sector where prolonged cheap oil has claimed a few debt-troubled casualties listed on the bourse. Think Swissco Holdings, Rickmers Maritime, Swiber Holdings, Ezra Holdings and its unit Emas Offshore - once upon a time steady businesses that have turned sick due to debt woes, poor cash flow and lack of jobs.

From "cautious optimism" that its creditors would give some room for it to put together a debt workout plan, Marco Polo Marine said on Monday that it was now "not confident" of meeting the expectations of lenders and strategic investors.

Even so, the firm said that it was "not of the present view that a failure of the proposed refinancing and debt restructuring is imminent" although not many would dare hang on to such blind faith.

When the going is tough, so much changes so quickly. Since its response to queries by the Singapore Exchange on April 23, Marco Polo Marine said it had experienced "resistance" from some lenders in its talks with banks and financial institutions to work out a preliminary proposal that included fresh funds from a "few" strategic investors under non-binding term sheets.

"The company is not confident at this juncture that it would be able to eventually bridge the gap between the expectations of the lenders and the conditions set by the strategic investors," it said in an announcement that was sent out on Labour Day.

Woes are mounting with Marco Polo Marine saying that reservation of rights letters and demand letters, including a statutory demand from creditors have clicked higher in recent days.

All that has led the company to pick a route some observers had earlier deemed inevitable - for the mandatory suspension of trading on its shares with immediate effect on Tuesday.

That's not to say the latest development is altogether shocking. Since September last year, the company has found itself having to set the record straight on its ability to operate as a going concern given doubts fuelled by the lack of visibility of oil price recovery.

And for a while, things appeared to be going its way. Last October, Marco Polo Marine sought and won noteholders' indulgence, for which it was "extremely grateful", to defer a S$50 million bond payment by three years to 2019. It also raised the interest rate to be paid on the notes.

Trouble was still not far away for the company that had once won over the investing fraternity with its low-cost shipyard strategy, a young charter fleet and its key growth market Indonesia which sweetened its competitive edge further when cabotage was implemented there.

As funds for working capital dried up, no thanks largely to non-payment from customers and as its vessels remained idle and couldn't be chartered out, the company said in April this year that it couldn't pay up the interest due on the notes.

It didn't take long for SGX to weigh in with four queries to the firm including whether it had the wherewithal to continue as a going concern and if a trading suspension was required.

Then, Marco Polo Marine replied that subject to the successful conclusion of the refinancing and debt revamp plan and barring further deterioration in oil prices, it expected to continue as a going concern. It also added that sufficient information has been disclosed by the company to enable trading to continue on an informed basis.

By Monday, the tune had changed. "Given the dynamic situation, a trading suspension will ensure that no person is trading in the shares of the company without sufficient information," it said.

Oil prices may be up 35 per cent in the first months of this year versus a year ago but most pundits remain cautious on future oil prices given the extreme volatility. But the prognosis for the offshore and marine sector appears to be less bleak these days versus a year ago.

In a mid-March report, CIMB Research opined that after two years of impairments and with relatively better crude oil price outlook for FY2017, downside risks to the valuations of O&M stocks was low.

Still, fundamentals are challenging and cashflow is under duress, with firms blessed with healthy balance sheets reigning supreme over their less-fortunate peers that have buckled in this brutal two-year down cycle.