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Order book completion critical to saving Swiber: interim JMs

They see "reasonable prospect" for success; others note that cash flow and working capital remain key hurdles
Tuesday, September 6, 2016 - 05:50

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The interim judicial managers (IJMs) of distressed offshore and marine company Swiber Holdings and its subsidiary said in a statement on Monday the prospects for saving the group hinge on support from stakeholders and its ability to complete some US$1.67 billion worth of secured projects.

Singapore

THE interim judicial managers (IJMs) of distressed offshore and marine company Swiber Holdings and its subsidiary said in a statement on Monday the prospects for saving the group hinge on support from stakeholders and its ability to complete some US$1.67 billion worth of secured projects.

The statement from the IJMs led by KPMG head of advisory Bob Yap said they had so far received 24 expressions of interest (EOIs) including proposals from potential investors to provide equity or debt financing, asset financing and project financing, although it stopped short of identifying the entities behind these EOIs.

The IJMs also see a "reasonable prospect" of achieving one or more of three objectives, including "a more advantageous realisation of assets" compared to winding up Swiber Holdings and Swiber Offshore Construction.

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However, the non-identification of the entities behind the EOIs caused some reservations towards the proposed JM.

Industry watchers said for instance, maintaining the existing order book is a challenge in itself in a protracted downturn, while a legal practitioner pointed out that pulling together stakeholder support to keep the Swiber group as a going concern is another tall order.

The IJMs did not give a breakdown for the US$1.67 billion worth of projects said to be still on Swiber's order book although the market would be keenly awaiting details to size up its viability during times when deferments and cancellations are a common sight in the industry.

More specifically, a question that will beg to be answered is whether the US$710 million project off West Africa Swiber acknowledged as being deferred indefinitely is included in the IJM's report filed with the High Court on Friday.

The IJMs also said key stakeholders including major suppliers, vendors and creditors have expressed willingness to work to support the completion of these projects.

Gibson Dunn & Crutcher LLP's partner Robson Lee pointed out that a key issue that demands clarity in these times of great uncertainty is whether cash flow and working capital would be made available for the group to deliver its contractual obligations in these secured projects.

Mr Lee argued for more details to be released on these EOIs particularly in the structure of their proposed investments before concluding on the viability of the proposed JM. Any white knight investor/s would conceivably require a substantial haircut from all existing creditors, regardless of whether debts were incurred prior to or subsequent to the IJM appointment, he said.

This effectively put any potential white knight on a diametrically different set of expectations and objectives from existing trade or bank creditors - a stakeholder group crucial to keep Swiber as a going concern.

Mr Lee sees two possible meaningful forms of support from these stakeholders - a moratorium in the repayment of previous debts owed by Swiber and SOC and the extension of new trade and financing credit. These stakeholders would require a clear understanding of Swiber's ability to make repayments for any new credit before taking on further receivables and debt exposure.

The IJMs have also sought to assuage the cash flow and working capital challenges by chasing after outstanding receivables on Swiber's books, including US$63.5 million owed by its 25-per cent-owned associate, Vallianz Holdings. Vallianz has declined to make such payments, citing various reasons such as extended credit and netting off practices as "an established course of dealings" between the two associates. The Swiber associate on Monday entered into a trading halt.

In the weeks during which the High Court shall deliberate on Swiber's JM application, Mr Lee said Swiber's stakeholders - including their anxious bondholders - will look to the IJMs for more concrete information. The stakeholders will be needing these details to set the parameters for any negotiation with potential white knights and the appointed judicial manager, to iron out a possible Scheme of Arrangement.

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