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Singapore Inc is facing mounting concerns as the city-state’s long-successful oil and gas sector turns sour with the oil
price slump. Oil and gas services have been a lucrative niche for the country. It is the world’s biggest maker of jackup
rigs, which are used to drill for oil in shallow ocean waters. But the plunging price of oil, currently hovering around
$40 a barrel, has turned this strength into a source of economic pain as rig builders have been forced to slash jobs
while smaller oil services providers face bankruptcy. The latest company to enter into difficulty is Swiber, a
Singapore-listed marine engineering company that has been placed under a court-supervised rescue plan. Analysts
say Swiber’s troubles underline the particular risks faced by the country’s three big banks — DBS, OCBC and UOB —
which are the main lenders to the country’s offshore oil and gas services sector.
Distribution : daily to 34.500+ active addresses 08-08-2016 Page 22
Swiber, valued at just over S$50m (US$37m) before trading was suspended, defaulted on a coupon payment last
week, hit by a slowdown in its business including the delay of a $710m oilfield project in west Africa. A total of
S$1.2bn in bonds issued by Singapore oil and gas services companies is set to mature by the end of 2017, according
to data compiled by OCBC Bank, and there are now worries there could be more defaults. “I would expect sporadic
default cases going forward. I would expect widespread default in the event that oil prices remain depressed on a
sustained basis,” said Wee Siang Ng, a Singapore-based analyst at Fitch Ratings. Big players such as rig-builder Keppel
Corp are also struggling. Keppel cut 16 per cent of its staff in the first half of the year as net profit fell 45 per cent.
Rival Sembcorp Marine reported a 70 per cent drop in first-half profit.However, Keppel is cushioned by the strong
performance of its property development and property fund management arm. Both rig builders also are backed by
Temasek, Singapore’s state investment company.But a handful of smaller oil and gas companies have attracted
warnings from auditors about their ability to continue as going concerns, financial filings show. “Several offshore and
marine companies were making investments for future growth during 2014 and were caught when energy prices took
a steep dive in [the fourth quarter of] 2014,” said Nick Wong, credit analyst at OCBC Bank, said. I would expect
widespread default in the event that oil prices remain depressed on a sustained basis The oil price slide had also
deterred upstream activity by oil majors, denting the profitability of services providers, Mr Wong added. To cope,
Singapore oil services groups have sought to raise money through rights issues, divesting assets, and by restructuring
bank loans. Concerns have spread to the banks after DBS said it expected to recover only about half of the S$700m it
has lent to Swiber. Only about S$300m of DBS’s lending to Swiber is secured against collateral such as
vessels.However, DBS said Swiber “had an order book of more than S$1bn” as of the end of June and noted that the
company had no overdue payments with the bank.At UOB’s results briefing it cited difficulties in the oil and gas
services sector for a rise in non-performing assets and identified the sector as a “key concern”. But the bank said its
exposure to Swiber was manageable. UOB’s outstanding loans to the oil and gas industry stood at S$9.3bn at the end
of June, or 4 per cent of the total outstanding loan book. DBS, which is due to report second-quarter results on August
8, had loans of S$17bn to the oil and gas sector in the first quarter, equivalent to 6 per cent of its loan book. Source:
Financial times
price slump. Oil and gas services have been a lucrative niche for the country. It is the world’s biggest maker of jackup
rigs, which are used to drill for oil in shallow ocean waters. But the plunging price of oil, currently hovering around
$40 a barrel, has turned this strength into a source of economic pain as rig builders have been forced to slash jobs
while smaller oil services providers face bankruptcy. The latest company to enter into difficulty is Swiber, a
Singapore-listed marine engineering company that has been placed under a court-supervised rescue plan. Analysts
say Swiber’s troubles underline the particular risks faced by the country’s three big banks — DBS, OCBC and UOB —
which are the main lenders to the country’s offshore oil and gas services sector.
Distribution : daily to 34.500+ active addresses 08-08-2016 Page 22
Swiber, valued at just over S$50m (US$37m) before trading was suspended, defaulted on a coupon payment last
week, hit by a slowdown in its business including the delay of a $710m oilfield project in west Africa. A total of
S$1.2bn in bonds issued by Singapore oil and gas services companies is set to mature by the end of 2017, according
to data compiled by OCBC Bank, and there are now worries there could be more defaults. “I would expect sporadic
default cases going forward. I would expect widespread default in the event that oil prices remain depressed on a
sustained basis,” said Wee Siang Ng, a Singapore-based analyst at Fitch Ratings. Big players such as rig-builder Keppel
Corp are also struggling. Keppel cut 16 per cent of its staff in the first half of the year as net profit fell 45 per cent.
Rival Sembcorp Marine reported a 70 per cent drop in first-half profit.However, Keppel is cushioned by the strong
performance of its property development and property fund management arm. Both rig builders also are backed by
Temasek, Singapore’s state investment company.But a handful of smaller oil and gas companies have attracted
warnings from auditors about their ability to continue as going concerns, financial filings show. “Several offshore and
marine companies were making investments for future growth during 2014 and were caught when energy prices took
a steep dive in [the fourth quarter of] 2014,” said Nick Wong, credit analyst at OCBC Bank, said. I would expect
widespread default in the event that oil prices remain depressed on a sustained basis The oil price slide had also
deterred upstream activity by oil majors, denting the profitability of services providers, Mr Wong added. To cope,
Singapore oil services groups have sought to raise money through rights issues, divesting assets, and by restructuring
bank loans. Concerns have spread to the banks after DBS said it expected to recover only about half of the S$700m it
has lent to Swiber. Only about S$300m of DBS’s lending to Swiber is secured against collateral such as
vessels.However, DBS said Swiber “had an order book of more than S$1bn” as of the end of June and noted that the
company had no overdue payments with the bank.At UOB’s results briefing it cited difficulties in the oil and gas
services sector for a rise in non-performing assets and identified the sector as a “key concern”. But the bank said its
exposure to Swiber was manageable. UOB’s outstanding loans to the oil and gas industry stood at S$9.3bn at the end
of June, or 4 per cent of the total outstanding loan book. DBS, which is due to report second-quarter results on August
8, had loans of S$17bn to the oil and gas sector in the first quarter, equivalent to 6 per cent of its loan book. Source:
Financial times