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Bargain hunting in OSV sub-sector still an 'extreme sport' for select few
THE worst may be over for the offshore support vessel (OSV) sub-sector but with recovery still years away, bargain hunting in this sub-sector is only suited for those able to comprehend and stomach the risks involved.
Pareto Securities Pte Ltd's chief executive David Palmer pointed to two key signs supporting a turnaround that could have fed investor interest in the OSV sub-sector.
First, global fleet utilisation has bottomed out as the number of working vessels worldwide has increased since the start of 2017.
Second, charter day rates offered for OSV spot charters in the North Sea have spiked amid a temporary tightness in supply.
But Mr Palmer qualified that a sustainable recovery in charter day rates, for both term and spot contracts, will come only after fleet utilisation breaches 70 per cent.
Considering global fleet utilisation stood at just about 50 per cent in August, he has projected that vessel charter rates could at most rebound to 75-80 per cent below the 2013-2014 peak levels in 2019-2020.
Mr Palmer said that those who can afford to hold and are seeking bargains stand a good chance at profiting from investing in OSV counters straight after they completed debt restructuring. These include the world's largest OSV player, Tidewater, which has successfully restructured its balance sheet under protection from the US Bankruptcy Code.
By contrast, most Singapore-listed OSV-focused counters failed to excite investors because they have not convinced the market that they have realigned their balance sheets with a new normal emerging in the sub-sector.
Kim Heng Offshore & Marine managing director Thomas Tan suggested that drastic cost-cutting and deleveraging are on the table for Singapore-listed OSV owner-operators that have borrowed heavily to fund extensive capacity building before the market crashed.
Lower for longer
Only those OSV players with lower cost bases that are commensurate with an environment of lower-for-longer vessel charter rates can survive this downturn, he said.
Kim Heng has elected to enter the OSV sub-sector in this downturn by picking up three vessels for a combined US$9.6 million from a bank auction.
Mr Tan said that getting these vessels on the cheap meant that Kim Heng stands to outbid rivals offering vessels built at higher costs.
OSV players with higher cost vessels need to take on steep impairments in order to stay competitive.
But in so doing, they could see existing equity on their books wiped out unless lenders and debt-holders take on the required haircuts on loans tied to these vessels.
Mr Palmer described bargain hunting at present as "an extreme sport" in Singapore's OSV sub-sector, which is still undergoing restructuring.
For now, one key area of investor interest is distressed asset purchases and those seeking bargains here are not new to the OSV business.
Kim Heng was active in oilfield services including logistics support for offshore drilling campaigns before moving in on the three Swiber vessels.
Prior to its announced acquisition bid for Emas Offshore Ltd, Baker Technology has been involved in, among others, the manufacture of components for jack-up drilling rigs.
Its chief executive Benety Chang was the major founding shareholder of PPL Shipyard until his resignation in 2012.
The chairman of the buyout firm looking to take Swissco Holdings' OSV business private, Hassan Basma, was most recently recognised for turning around Malaysia's leading OSV player, Bumi Armada, before re-floating it on the Kuala Lumpur Stock Exchange.
Mr Hassan told BT that for those betting on a recovery in the next three to four years, this is a good window to enter the OSV sub-sector by picking up distressed assets.