More Singapore companies likely to seek relaxed debt conditions next year

MORE companies next year are likely to ask bondholders to relax financial convenants as economic conditions get more challenging, said a fixed income banker.

In the last quarter of 2015 several companies have begun negotiating to "loosen their convenants", said Tan Kee Phong, head of capital markets at OCBC Bank.

"Markets are more volatile this year," said Mr Tan in a media briefing on Tuesday.

Marco Polo, Tat Hong, Otto Marine and Dyna Mac are meeting or about to meet investors to get them to "consent to a cure", he said.

Generally companies are asking to ease up on gearing and interest cover convenants, he said.

Offshore support vessel operator Pacific Radiance has already done so for the interest coverage of its 2018 bonds.

Last month Pacific Radiance managed to loosen the convenant on interest coverage to between one and three times.

Getting investors to agree to the cure would prevent a breach of interest coverage of at least three times, he said. During better times, these companies had enough cash for interest coverage of even four times, he said.

Without the agreement, it would lead to a default, said Mr Tan.

Amendments ... "will provide increased operational and financial flexibility and debt headroom in light of softer market conditions facing the global economy and the oil and gas sector, which may persist on a prolonged basis and to allow the group further access to funding opportunities, if need be", said Otto Marine to bondholders earlier this month.

This year has also seen two bond defaults - Pacific Andes and Trikomsel.

Still Mr Tan said the number of issuers which are feeling "stretched" is small compared to the 161 SGD bond issues sold this year.

The 161 deals has raised S$22.7 billion, about 3 per cent lower than the S$23.5 billion in 2014.

OCBC has done well, Mr Tan noted, ending 2105 as the number two fixed income bank in SGD bonds, up from third rank in 2104. It was involved in S$5.2 billion worth of deals this year, up 81 per cent over last year.

"It's been an active year for us in our home market," he said.

Given the volatile conditions, the volume for the entire SGD market is pretty decent, he said.

OCBC Bank's market share in SGD bonds has been increasing; in 2015 it rose to 22.8 per cent, up from 12.1 per cent in 2014. In 2013, OCBC had 9.3 per cent market share.

DBS Bank is the top bank in SGD bonds with a market share of 41 per cent.

Foreign banks HSBC and Standard Chartered used to be active fixed income banks in SGD bonds; StanChart was in fact number 2 last year.

OCBC's main market is Singapore and "the primary focus is to look at clients' solutions and work from there," he said.

Mr Tan thinks while it's hard to predict how 2016 would look like in terms of issuance, the market shouldn't be too bad given that a fair amount of refinancing would need to be done.

"Generally it's not yet recessionary, growth for Singapore is low 2 per cent but the US has clearer signs," he said.

The Trade and Industry Ministry had said in its latest economic report that growth for the 2015 should come in at "close to 2 per cent". Private sector economists are projecting the economy to grow at a slightly faster pace of 2.2 per cent next year.

Sectors which are likely to sell bonds next year could be the public sector or statutory boards, real estate firms especially Real Estate Investment Trusts and financial institutions.

The Housing and Development Board which typically sells S$4-S$5 billion bonds a year only printed S$1.2 billion this year, he noted.

"This year HDB has been visibly absent...hopefully they'll do more next year," he said.

Oil and gas firms are unlikely to tap the market given the plunge in oil prices which has reduced their need for capital expenditure, he said.