Singapore Oil Borrowers Seek More Slack to Avoid Bond Defaults
2015-11-23 16:00:01.0 GMT
By Bloomberg News
(Bloomberg) -- Borrowers in Singapore, so far spared from a
wave of defaults in the oil services industry, are starting to
ask creditors to cut them some slack.
Three companies including Dyna-Mac Holdings Ltd., part-
owned by Keppel Corp., this month are asking bond holders to
alter certain debt limits or profit targets as contract delays
wreck firms’ earnings. The issuers are among 28 oil services
firms listed in Singapore with more than S$1.8 billion ($1.3
billion) of notes maturing next year.
“If the oil markets remain depressed beyond 2016, you’re
going to see some problems,” Joel Ng, an analyst at KGI Fraser
Securities Pte in Singapore, said by phone. “Some of the oil and
gas players will probably have to restructure their bonds.”
The borrowing that helped build Singapore’s biggest export
industry is looking overstretched after the price of Brent crude
slumped near $40 and the island’s economy grew just 0.1 percent
in the third quarter. Delivery deferrals and provisioning by
yards are causing "cash flow issues," Maybank Kim Eng Securities
wrote in a Nov. 20 report.
Money is certainly tighter for the 28 listed oil services
firms. The median ratio of their operational earnings to
interest expense, a measure of a company’s ability to pay its
debts, was 5.4 times in their latest filings, a steep drop from
12.5 times at the end of fiscal 2014, according to data compiled
by Bloomberg.
Oil services provider Dyna-Mac’s measure plunged to minus
4.4 times in the latest quarter from 27 times at the end of
2014. The company is currently asking holders of its bonds due
in 2017 to, among other things, change a clause that limits its
interest coverage ratio to at least three times. Dyna-Mac
declined to comment for this story.
Pacific Radiance Ltd. is also seeking to tweak a rule on
its 2018 bonds that requires interest coverage above three
times, compared with 4.1 times as of Sept. 30. The company’s
debt to equity ratio, a key measure of leverage, jumped to 98.4
percent at the end of June from 75.7 percent at the end of
December.
“It’s a prudent approach because we wouldn’t know how long
this soft market condition will last," Loo Choo Leong, group
finance director, said by phone. "While we do not expect to
breach the covenant, leaving it to hope is not a strategy. We
have already cut costs and realigned our ops to be as
competitive as possible. We have prepared ourselves for the long
march ahead."
On average, the debt to equity ratio of Singapore-listed
oil firms rose to 73.1 percent in latest filings from 68 percent
at the end of the last fiscal year, while their mean cash
holding fell to $165 million from $290 million.
“More delivery deferrals and provisioning by yards suggest
clients’ unwillingness or inability to pay due to cash flow
issues,” Maybank Kim Eng analysts wrote in last week’s report.
“Credit problems have started to surface.”
Global Losses
Investors who plowed about $14 billion into global high-
yield energy bonds sold in the past six months are sitting on
about $2 billion of losses, according to data compiled by
Bloomberg. And the energy sector accounts for more than a
quarter of high-yield bonds that are trading at distressed
levels.
More than half of the Singapore dollar bonds that are
trading with yields above 10 percent are from the oil services
industry, the data show. The median yield for the 312 notes is
4.03 percent.
Ezra Holdings Ltd., which successfully raised S$200 million
from a rights offering in July, is asking noteholders to change
certain requirements on its bonds after it agreed a $1.25
billion subsea services joint venture with Chiyoda Corp.
The venture “will be better positioned to capitalize on
market opportunities as well as manage risks arising from
fluctuating market conditions,” an Ezra spokesperson said
Monday.
Both Pacific Radiance and Dyna-Mac cited challenging market
conditions as the reason why they may not meet debt
requirements, a breach that would legally be considered a
default unless bondholders accept changes to the contract
clause.
“It’s going to be a very bad year for the oil companies and
the yards,” said Park Moo-Hyun, an analyst at Hana Daetoo
Securities Co. Ltd. in Seoul. “The issue here isn’t about when
are oil prices going to recover. Oil companies are going to
fight for survival.”
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