Swiber's move to wind up sends shock waves through market

Singapore

SWIBER Holdings sent shock waves through the offshore marine, banking and stock markets on Thursday after it applied to the courts to be wound up.

The move battered the share prices of several O&M counters and sent analysts scurrying to update their reports on companies in the sector. Among banks, DBS appears to bear the heaviest burden with an exposure of S$700 million to the Swiber group.

In addition to DBS, the major creditor banks to Swiber are Bank of America-Merrill Lynch, Citibank and Deutsche Bank. Citi said that its exposure was minimal and manageable. UOB also said that its exposure was manageable.

Swiber announced past Wednesday midnight that it had made the winding-up application on the afternoon of July 27 and a hearing has been fixed for Aug 19.

In addition, the listed offshore and marine group said that it has applied to be placed in provisional liquidation and the High Court of Singapore has appointed Cameron Lindsay Duncan and Muk Siew Peng, care of KordaMentha Pte Ltd, as the joint provisional liquidators.

In a separate SGX filing on July 28, Swiber announced the resignations of Francis Wong as executive director and vice-chairman, Leonard Tay as executive director and group chief financial officer, and Nitish Gupta as executive director.

BT understands that Mr Wong and Mr Gupta, together with Swiber group chairman Raymond Goh and chief executive Darren Yeo, are commonly regarded as the pioneers of the listed company.

The petition took analysts off guard.

As with almost all O&M-focused entities, the company had been going through a very rough patch amid a dramatic slowdown in contracting activity following a collapse in oil prices.

One analyst told The Business Times that the expectation was that banks would keep Swiber afloat as they fear pulling the plug could trigger a crisis in Singapore's O&M sector.

Already, a DBS Group Research note on Thursday has warned about the danger of "a domino effect on Singapore O&G players" and "knee-jerk selling pressures".

The writing is clearly on the wall that cash was running tight at the highly-geared company. One concerned shareholder noted that the company's announced letters of demand for trade claims had ballooned to US$15.2 million from US$4.76 million within weeks from its first disclosure on the matter on July 8 and its response to SGX's July 21 query. Swiber announced on July 28 before unveiling the winding-up petition that it was facing letters of demand totalling about US$25.9 million as at July 26.

The company had just scraped through two bond deadlines: a S$75 million medium term note which fell due on July 6 and a S$130 million MTN due on June 6.

Despite three adverse disclosures by the company on July 8 and July 11 that prompted the SGX queries, they did not give an indication that it was headed towards a winding-up.

SGX on July 21 publicly queried Swiber on the company's three disclosures as well as a BT report.

In response to queries pertaining to the BT report flagging uncertainty over the timely delivery of newbuild vessel Kaizen 4000 towards a contract off Vietnam, the company claimed that it was still "disputing" the client's unilateral termination of the said contract.

SGX had also queried Swiber on the delay in a US$200 million preference share subscription in the company's wholly-owned subsidiary, Swiber Investments Ltd, and the deferment of a US$710 million field development project off West Africa.

The deferment of the US$710 million contract is believed to be a major contributing factor to Swiber's cash flow problems. One analyst wondered if the major bank creditors behind Swiber may have found it challenging to justify extending new loans to the O&M player after the US$710 million project was deferred indefinitely. This was not least because in December 2014 when the project was first announced, it was said to account for about 70 per cent of Swiber's then outstanding order book.

Swiber had maintained in its SGX disclosures that the project was delayed due to "weakness in the oil and gas sector". It did not specify when the project would be executed or elaborate on the reason behind the delay. The lack of details and tardy response drew the ire of some investors, who called BT to air their misgivings.

To date, Swiber has not identified the client nor name the project behind the US$710 million award first announced in December 2014. The project was due to be executed from the first quarter of 2015 through to the middle of 2017, but it was only this July that the company disclosed that it was deferred.

Mike Meade, managing director of brokerage M3 Marine, noted that O&M contract disclosures on the Singapore bourse are generally missing information on the client, the value and other details that would have gone into any filings on such business transactions on the New York Stock Exchange.

He sees no significant purpose for stock exchange filings on contract awards without the critical details beyond generating investor interest in a listed O&M company.

Robson Lee, partner of Gibson Dunn & Crutcher LLP, argued: "The public disquiet that has arisen concerning Swiber is not with respect to the announced winding-up petition. Rather, it would appear that the company has not been timely and complete in its public disclosures on significant developments that have a material impact on its business and financial positions since early July 2016."

Mr Lee also said that from what he observed of the news reports and SGX queries, there could be "a contravention of the continuous disclosure listing rules of the SGX" and that this could be "a criminal offence if the breach is intentional or reckless".

NUS professor Mak Yuen Teen said that he would not be surprised if the Monetary Authority of Singapore and the Commercial Affairs Department get involved in an investigation of possible breaches of the Securities and Futures Act with regard to the failure to make continuous disclosure and/or false or misleading disclosures.

Prof Mak also expects the regulators (including SGX) to look at whether there was unusual trading and possible insider trading of shares, given the consistent tardiness in Swiber's disclosures.

SGX chief regulatory officer Tan Boon Gin said that any breaches of listing rules by the company can result in actions which might include monetary penalties though the relevance of this depends on the financial situation of the company.

As for individual directors or executive officers, possible actions if they are found to have breached the rules range from public reprimands to prohibition against their appointment as directors and/or executive officers of any issuer for a period not exceeding three years.