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IE Singapore links up with banks to support new oil & gas projects (Amended)
IE Singapore is working with local banks to provide funding for new projects in the beleaguered oil and gas (O&G) sector.
Funding for new projects has ground to a halt, as the growing number of defaults among cash-strapped firms in the sector has spooked banks, making them risk-averse.
The Business Times understands that the loans will be issued under an enhanced version of the International Finance Scheme (IFS) administered by IE, which promotes international trade and partners Singapore companies in going global.
Responding to BT, IE said the IFS eases companies' access to financing for their overseas ventures, including those in the O&G sector. However, the government agency neither commented on the talks said to be ongoing with the banks nor the plans to enhance the existing scheme.
But sources said participating local banks are looking to extend US$30-US$50 million in loan financing for new projects under IFS.
A proposal is said to have been tabled for the government to absorb up to 80 per cent of the risk associated with each project loan, but IE only commented that risk-sharing is assessed on a case-by-case basis under the existing IFS.
A local banker said that a few informal discussions on risk-sharing are ongoing.
"If it's 70:30, we are comfortable; 80:20, great," the banker said.
Another local banker said the funding is for new projects, not to save a bad loan. "Banks are holding back on offering new loans because they are all scared," this banker said.
An industry source, also referring to the focus being on new rather than existing projects, said the aim of the initiative is to help Singapore companies that can be "world leaders when the next upswing comes".
Some quarters have thus asked how far the funding initiative will extend; they want to know if it will also help listed small- to mid-cap offshore-support vessel players facing a working capital crunch.
Industry watchers mostly welcome the move. New projects, especially in the upstream segment, are hard to come by with O&G producers having slashed capital expenditures since the 2014 oil price plunge.
Pareto Securities chief executive David Palmer said: "Every bit of help in terms of what the government can do to enable new projects to take place, counts."
He views the proposal to expand the government's share of risk in new project financing as levelling up the playing field for industry players in Singapore. In China, for instance, the Chinese credit agency Sinosure had stepped in to back loans of up to 90 per cent of O&G-related new-building projects in local shipyards, he noted.
But the group chief financial officer of O&G procurement-specialist Federal International (2000), Loh Chee Meng, said banks may not have the appetite for risk, and that this may continue to pose a challenge for oil and gas projects.
He appealed to the government to consider extending new or existing packages to beyond those offered by a restricted pool of banks or financial institutions.
Asked to comment on the US$30-US$50 million quantum, he said this would be adequate support for Federal International's commitment towards the US$155 million job to procure, build and install the PTTEP's Zawtika gas project off Myanmar.
Mr Palmer asked whether the IE initiative would be directed mainly at new projects, including those in shipbuilding for Singapore yard groups.
In the LNG sector flagged by IE as a key growth sector for instance, demand is emerging for LNG bunker barges and LNG-fuelled vessels. LNG is considered a lead alternative among cleaner-burning fossil fuels for bunkering.
A US$50 million loan could cover the new-building cost of up to four LNG-fuelled harbour tugs, industry sources said.
However, the outlook for new-building demand for these vessels is still hazy; ship owners are still seeking clarity on the International Maritime Organization's decision on the global sulphur cap, to take effect in 2020. Questions have also been raised on the readiness of LNG bunkering infrastructure to support the fuelling of these vessels.
For the long-term sectoral health, assistance should go only to economically viable projects, industry watchers said. Checks and balances also need to be in place; for instance, some suppliers may take ride on the available funding to jack up prices, one source said.
Amendment note: The original article named Mr Loh Chee Meng as group chief executive. This should have been group chief financial officer. We apologise for the error.