Asean oil debt pain spreads as linkages make bad situation worse

[HONG KONG] South-east Asia's oil debt is feeling more pain as connections between companies in the industry make a bad situation worse after Swiber Holdings Ltd's failure in July.

Bonds in Singapore oil services company Ezra Holdings Ltd have plunged to 65 US cents on the Singapore dollar according to prices from DBS Group Holdings Ltd, partly as its stake in Malaysian counterpart Perisai Petroleum Teknologi Bhd slumped.

Notes in Singapore's Pacific Radiance Ltd were at 42 US cents according to DBS prices, after it was forced to make a provision of US$10.1 million for doubtful receivables from Swiber.

South-east Asian oil services firms are facing mounting difficulties as crude prices have dropped to about US$46 a barrel, less than half the prices in 2013, forcing energy giants to put investment plans on hold.

That's taking a toll on countries such as Singapore, where the marine and offshore industry provides about 19 per cent of manufacturing jobs.

"There's definitely some spillover effects if a company goes under," said Joel Ng, an analyst at KGI Fraser Securities in Singapore.

Singapore oil services companies are also being hurt by failures across the world. Sembcorp Marine Ltd, whose Singapore dollar bonds maturing 2021 traded at 93.5 according to prices from DBS, was affected when Sete Brasil Participacoes SA filed for bankruptcy in April. The Singapore rig builder made S$329 million of provisions during its fourth quarter ended December 2015 for contracts it had with the Brazilian firm.

Perisai has twice delayed the delivery of a drilling rig it had contracted Sembcorp Marine's unit to build. A spokesman for Sembcorp Marine said that the firm believes that its S$329 million provision for its contracts with Sete Brasil remain adequate. He added that the firm's additional provisions of about S$280 million for the financial year 2015 for prolonged rig deferrals and possible cancellations are also sufficient currently.

Sembcorp Marine is committed to supporting its customers during this challenging period while preserving its commercial interests, the spokesman added.

Shares in Kuala Lumpur-based Perisai, which also charters vessels for towing equipment, have fallen 33 per cent since it said on Aug 18 it would negotiate with holders of a bond maturing on Oct 3. The S$125 million of 6.875 per cent notes were quoted at 55 US cents by DBS.

Perisai said in a filing on Aug 24 that "continuing depressed oil prices" have caused uncertainty on the outlook for oil and gas asset demand. It added that all covenants relating to financial ratios applying to the group were fully complied with, with the exception of the interest coverage ratio. That ratio was "slightly below the required minimum" as at the financial period ended June 30, and the group is "taking active steps in addressing this slight deviation," it said.

Ezra, which had US$1.2 billion of total group borrowings and debt securities as of May 31, said in August it is focusing on deleveraging its balance sheet and selling non-core assets to raise capital. The firm, whose services including making wellhead platforms, holds its 20.6 per cent stake in Perisai through subsidiaries.

A spokeswoman for Ezra didn't immediately reply to a request for comment. A Perisai spokesman confirmed that Ezra is its single largest shareholder but declined to comment further.

Pacific Radiance Ltd, which posted a total comprehensive loss of US$64.7 milion during the second quarter ended June said its filing that "it is mindful that the challenging times ahead may last another two to three years." A Pacific Radiance spokesman didn't immediately reply to a request for comment.

KrisEnergy Ltd, whose Singapore dollar bonds maturing 2018 were at 64 US cents according to DBS prices, said in August that its debt covenants may come under stress and that it is exploring equity issuance, refinancing and asset sales to strengthen its capital structure. The firm's local currency notes due in 2017 were at 67 US cents, according to DBS prices.

Tanya Pang, a spokeswoman for KrisEnergy, declined to comment.

The greatest concern now is how the mounting industry challenges "will affect the oil services companies in getting bank financing," said Yeak Chee Keong, an analyst at Maybank Kim Eng Securities Pte Ltd.

"And ensuring that banks continue to support them."

BLOOMBERG