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Swiber confirms plans to call perpetual bonds

[SINGAPORE] Swiber Holdings said it planned to call its 9.75% perpetual bonds due on September 25, as scheduled, despite investors' fears that it might not be able to do so.

This came after it had repurchased and cancelled S$750,000 in principal amount of its 9.75% perpetual bonds, callable on September 25, leaving S$79.25m outstanding. It did not disclose pricing for the repurchase, which took place in the open market. "Swiber plans to call its senior perpetual securities in September," Swiber told IFR in an emailed statement. "If feasible, the company will also make further repurchases of the securities in the open market. Swiber is confident that it has sufficient financial resources to fulfil its debt obligations this year." Investors have worried about Swiber's ability to meet its debt obligations, after a plunge in the oil price hit earnings in the offshore services sector. "One can argue that the company is trying to show the commitment to call back the perps, but the not-so-good part is the size of the buyback, which I think overshadows the good intention," said a credit analyst.

Nonetheless, the commitment should theoretically reduce investor concerns that Swiber may not exercise the call on the bond, which have been a drag on secondary-market performance. The company is mindful of the punitive 300bp step-up if it does not call. With the bonds quoted below par, it is a strong incentive for the company to preempt the call, which it has to do at par.

The bonds are fairly illiquid, but the analyst put the secondary price at around 87/91 - underwater, but far from distressed levels that would imply the market expects it to miss the call. "I guess it's good they have cash, but do I want them spending their working capital? Not really," said one investor."But I guess (for Swiber) it beats redeeming at par if they can buy back now for lower." Bankers questioned the small size of the buyback, but noted that many holders would be reluctant to sell at a discount."They will need another 20x more of that for it to be meaningful," said a DCM banker.

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Other bankers pointed to Swiber's substantial trade receivables, totalling US$454m at the group level at the end of December. They said that if the company chased its clients for payments, it could get its hands on extra cash.