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ASL Marine's action on notes a good start to O&M debt revamp

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The year of 2017 seems to be off to a good start for debt restructuring in the beleaguered offshore and marine (O&M) sector with ASL Marine securing overwhelming support for the restructuring of its two medium term notes totalling S$150 million.

THE year of 2017 seems to be off to a good start for debt restructuring in the beleaguered offshore and marine (O&M) sector with ASL Marine securing overwhelming support for the restructuring of its two medium term notes totalling S$150 million.

At two consent solicitation exercises on Friday, ASL Marine won 98.7 per cent and 100 per cent of votes cast by represented noteholders respectively for the proposed restructuring that will extend the full redemption of S$100 million notes due this March and S$50 million notes due in October next year, by three more years.

Coming on the heels of an oil price rebound to the US$50 levels, one question surfacing from the landslide vote is whether the tide may have turned in favour of debt restructuring for listed O&M entities here. Notes restructuring commonly entails extension of the maturity or redemption of the principal amount. As iFast's bond specialist Terence Lin noted, increasing oil prices would have fuelled expectation of improving industry fundamentals and bolstered hope that a positive outcome may eventually materialise for noteholders who choose to stay the course with a listed O&M company.

But ASL Marine has made it clear from the outset that a sectorial recovery from increasing oil prices was not factored into the business plan communicated to its noteholders. Instead, managing director Ang Kok Tian clarified that the business plan shared with stakeholders during the notes restructuring was premised on further diversification beyond oil-linked segments.

BT understands that the listed O&M company is also exploring opportunities from offshore wind and port infrastructure developments.

Mr Ang's response would not surprise those who have tracked the founding family behind ASL Marine. M3 Marine's managing director Mike Meade, in noting ASL Marine's past success in diversifying its portfolio, believes that the management anchored by the Ang family will be able to deliver in this respect. The Ang family is also widely known in the sector for its prudence and for calling a spade a spade.

In this protracted downturn, this helps in communicating to stakeholders - bank lenders, noteholders and shareholders alike - and making sure they understand where they stand so that they can take the ride with the company to its eventual recovery.

Where its noteholders are concerned, iFast's Mr Lin said that ASL Marine appears to have struck a fine balance in tabling a restructuring proposal that gains a majority buy-in without pandering to unrealistic expectations that will compromise its chances of surviving this downturn. Maturity of the two notes issuances has been extended by three years, which appears to come within a time horizon acceptable to noteholders. Whereas some other preceding notes restructuring in the sector have proposed to cut coupon rates, ASL Marine has pledged to raise theirs in exchange for extra breathing space from its noteholders.

ASL Marine's notes restructuring also stands out from the pack as it was preceded by a rights issue that was backed by the controlling Ang family, which took up S$17 million of the rights issue, which raised gross proceeds in excess of S$25 million. This is a positive sign to noteholders and the broad market in that equity-holders - management included - have more skin in the game and should be committed to ensuring the longer-term survival of the firm, Mr Lin said.

Prior to Friday's vote, OCBC Asia Credit Research also noted that ASL Marine, as part of its pitch for notes restructuring, has thrown in a subordinated floating charge over a group of vessels, although this may amount to psychological reassurance at best given that the collateral is currently enough just to cover the first charge to an incoming S$99.9 million club loan facility.

Notwithstanding the extra efforts ASL Marine has expended, Mr Lin suggested that the outright default situations and other recent complications associated with preceding notes restructuring have instilled fear in noteholders, which may pre-dispose this stakeholder group against opposing proposals from the issuers.

However, one issue still clouding ASL Marine's road to recovery in this downturn is whether the listed entity has done enough to ride the wave to the next sectorial upswing. Pareto Securities Pte Ltd's chief executive viewed ASL Marine's debt restructuring as heading in the right direction to the extent that the pain was shared by both equity- and noteholders. He said, however, in a comment on the broader O&M sector, deleveraging is required for any industry players looking to benefit from the opportunities opening up under a weaker market. Market watchers will be awaiting indicators from ASL Marine's second-quarter results release to gauge how the new club loan and deferment of the notes redemption, when weighed against its rights issue, may impact its net gearing.

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