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Broker's take: Swiber may rid stake in Vallianz, expect domino effect on O&G sector

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European shares retreated on Thursday, weighed down by some weak corporate updates out from the likes of Dialog Semiconductor and oil major Royal Dutch Shell.

SWIBER Holding's shocking winding up application, followed by the resignation of three directors including its vice chairman and chief financial officer, has given it the dubious honor of being the first oil and gas (O&G) related company on the Singapore Exchange to be put on voluntary liquidation.

This is expected to have a domino effect on Singapore O&G players, which could see knee-jerk selling pressures, DBS Group Research said in a note on Thursday.

Already, Swiber's woes have spread to Vallianz, in which the former has a controlling stake. After hitting S$0.016 a share, Vallianz was trading around S$0.021 a share, down S$0.015, or 42 per cent at 03:01pm. A staggering 206 over million shares changed hands, making it the most actively traded stock on the exchange.

On Wednesday, Vallianz announced that its non-executive director and chairman, Raymond Kim Goh, 48, has resigned due to "health reasons". Mr Goh is also the executive chairman and founder of Swiber Holdings.

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The resignation was followed by Swiber's announcement early Thursday that it has filed an application to place the company under provisional liquidation. The winding-up application will be heard in court on Aug 19. Swiber also said also said its executive director and vice chairman Francis Wong, executive director and chief financial officer Leonard Tay and executive director Nitish Gupta have all resigned "to seek new opportunities".

DBS noted that Swiber contributed to 10-15 per cent of Vallianz's topline but this is likely to be smaller in terms of bottomline.

"Besides, Swiber's 25.15 per cent stake in Vallianz could be put on sale and we expect private placement for sizeable blocks. However, risk for potential provision for bad debt should be low as we understand Vallianz actually has net payables to Swiber,'' DBS said.

The spotlight has also been cast on Ezra, another highly geared O&G stock. It was trading around S$0.053 a share, down S$0.003, or 5.35 per cent. More than 56 million shares were traded, making it the third most active on the exchange.

"Ezra is the other counter which investment community has been more mindful of because of their high debt level and exposure in deepwater space. The tie-up with Japanese partner Chiyoda and sales and leaseback of a number of vessels have resolved the re-financing needs through 2017. But business environment remains very challenging and affects their cash flows,'' DBS said.

The research house believed that Swiber's decision to wind up followed management's failing to secure capital injection to refinance a maturing bonds and the termination of the large West African contracts.

Swiber has S$100 million worth of bonds due in 2016; S$300 million in 2017 and S$150 million in 2018. On top of this, they have over S$500 million bank loans as of end March 2016, bringing total debt to an estimated S$1 billion. In contrast, total cash on hand was less than S$200 million.

Other stocks that were highlighted included Ausgroup. Its shares were trading around S$0.049 each, down S$0.004, or 7.55 per cent.

"The delay in the commencement of Port Melville due to environmental issue affect the re-financing of its S$110 million bond maturing in October 2016. It is in the progress of seeking solicitation of waiver for breach of NTA covenant,'' DBS said.

Another is Nam Cheong, which was trading around S$0.074, downS$0.001 a share, or 1.33 per cent. DBS said its built-to-stock business model suffers in this envinronment. The group also has millions worth of bonds due in 2017 and in 2018-2019.

DBS said,"The accelerating M&As and consolidation signals the sector bottoming out. We need to see higher oil prices and reversal in capex trends before calling for turnaround.

It has a hold and fair value calls for the regional O&G coverage.