Swiber troubles show urgency needed in fixing debt, adviser says

[SINGAPORE] Singapore's offshore oil services companies and marine engineering firms are leaving it too late to reorganise finances to survive an industry slump, raising the risk of steep losses on their bonds, a debt restructuring consultancy said.

The lack of urgency means lenders have time to take on more security for their loans, leaving bondholders with poor recovery prospects, Kurt Metzger, a Singapore-based director at GEM Advisory, said in an interview.

Swiber Holdings Ltd's troubles mean many weaker issuers from within the industry could struggle to access the capital markets to refinance maturing debt over the next 24 months, he said.

Singapore's bond market has suffered new defaults since November last year, the market's first since 2009. Swiber's failure to service a bond coupon last week came after PT Trikomsel Oke missed payments on two notes totaling S$215 million since November 2015 and Pacific Andes Resources Development Ltd reneged on S$200 million of securities in January.

"From past experience, the time frame to complete a proper balance-sheet restructure can be in excess of 12 months as the various stakeholders always have different agendas that have to be aligned," he said.

"However, the directors of the issuers seem to be in denial and not taking proactive action to preserve the value of the companies and a crisis mentality is created as they wait too long. The Swiber situation is a good case in point."

As the company fell into court-supervised judicial management, Swiber said it was unable to make a coupon payment on Aug 2, according to its stock exchange filing. The company has four bonds worth S$460 million and a 450 million yuan (S$91 million) debt outstanding, according to Bloomberg data. It took two short-term loans from DBS Group Holdings Ltd to pay off bonds in June and July, pledging more of its assets to the lender as security.

Swiber's executives including Chairman Raymond Kim Goh are out of the office and not available for comment, according to a person who answered the company's main telephone line today.

Even in the best-case scenario when issuers restructure their balance sheet well before bond maturity, Singapore's illiquid market and the lack of organisation among individual investors mean bleak recovery prospects, said Mr Metzger, who has worked on distressed cases including Chinese solar-power producer Suntech Power Holdings Co and Thai companies Gulf Cogeneration Co and Precious Shipping Pcl.

Swiber's Sudden Failure Puts Focus on Bondholders' Dilemma

"Limited liquidity in the secondary market makes it so difficult for an investor to exit," he said. The small size of Singapore dollar bond issues means professional distressed-debt investors haven't been active, and the trustee structure associated with these notes didn't anticipate the need to properly represent bondholders in a restructuring, he added.

Oil-related firms face S$325 million of securities maturing through year end, S$390 million in 2017 and S$700 million in 2018, according to Bloomberg-compiled data. Ausgroup Ltd, Otto Marine Ltd and Swiber were among 10 Singapore-listed companies that sought to loosen debt covenants this year, up from eight in 2015.

"Clearly, there's a need in the current environment for the bondholders to find a champion of their rights and actively participate in the restructure process to ensure the proper return is achieved," Mr Metzger said.

"Unfortunately, it looks like the current path is the old adage of dealing with distressed situations: Amend, Pretend and Extend."

BLOOMBERG