SWIBER Holdings' failure was a result of a protracted slump in global crude oil prices hitting its earnings and the marine engineering firm's high leverage, S&P Global Ratings said on Wednesday.
In a study entitled "Sifting For Signs of the Next Swiber", the rating agency said Swiber's financial ratios and liquidity profile based on end-2015 are typical of companies that it rates 'B-' or lower.
"Between 1981 and 2015, companies rated in the 'B' category were 20x more likely to default within a year than 'BBB'-rated companies," said Elena Okorochenko, S&P Global Ratings' head of Asia-Pacific (ex Japan).
Issuers rated 'B-' or lower are deemed most vulnerable and have greater default risk than higher-rated issuers.
"So if we were to rate Swiber - and we weren't - our credit rating would indicate a relatively high chance of default," Ms Okorochenko said.
While Swiber's collapse was sudden, there were signs the market could have seen of impending trouble.
First was the cutting of capital expenditure by major oil companies which in turn hit companies like Swiber which provide support services to the industry.
"The oil and gas sector globally started displaying prominent default risk in mid 2015. By June 2016, the sector had 59 issuers in the vulnerable category, accounting for 24 per cent of all issuers in the category,'' Ms Okorochenko said.
Second, Swiber's financial ratios had appeared weak in the past quarters, with its high debt of about US$1 billion as at Dec 31, 2015, and an earnings before interest, tax, depreciation and amortisation (EBITDA) of about US$150 million on a rolling 12-month basis, based on S&P Global Market Intelligence data.
"Even in 2013 when Swiber's EBITDA peaked at US$160 million, its leverage was around 4.3x,'' she said.
Third, the company's liquidity had been fragile on its short-duration debt. Ms Okorochenko noted that while Swiber had refinanced in the past, "with US$3 billion in debt repaid and US$3.1 billion raised over 2013-2015, these numbers show significant refinancing risk and some inability or unwillingness to reduce debt".
She warned that the possibility of further credit stress and defaults in the sector remains.
"With lenders' discomfort about extending credit to oil and oil-related companies, refinancing risk is likely to grow. We hope that investors will have sufficient tools and benchmarks to spot the next Swiber," Ms Okorochenko said.