Bondholders bracing themselves for losses

Oil and gas contractor Swiber Holdings has filed a winding-up application, and its directors have resigned to pursue their own interests.
Oil and gas contractor Swiber Holdings has filed a winding-up application, and its directors have resigned to pursue their own interests. ST PHOTO: MARCUS TAN

Many bondholders are staring at big losses in the wake of troubles at Swiber Holdings but the risk may be lower now that it is going into judicial management.

The firm was an active player in the bond market, having launched 20 bond issues since 2008. If bondholders end up with little, the focus will be on Singapore's bond market, which has seen a number of defaults since late last year.

Mr Terence Lin, assistant director of bonds and portfolio management at fund researcher iFast, said Swiber's bonds were a risky bet. He noted it was one of the heaviest borrowers in the offshore and marine industry, which has been hurting amid weak oil prices, with more than US$1 billion (S$1.35 billion) in debt.

Meanwhile, the banks' role in selling the bonds is now in the spotlight. A former bond salesman, who declined to be named, told The Straits Times that bankers get a commission for issues which can be as high as 1 per cent. "People today are cash rich and looking for yield. Those 4 or 6 per cent yields would have been very attractive compared to the low deposit interest rates."

DBS has managed 12 of Swiber's 20 issues, along with banks such as ANZ, RHB, Citibank, HSBC, ICBC and OCBC. These bonds, which come with a minimum investment of around $250,000, are typically placed to institutional and sophisticated investors, including insurance firms, asset managers, corporates and hig- net-worth individuals.

These bonds do not require the filing of a prospectus. The market veteran called for the possible risks of defaults to be more clearly highlighted in future. Swiber has four outstanding Singdollar-denominated and one yuan-denominated bonds, amounting to $551.8 million. The largest issue, at $160 million, has a coupon rate of 7.125 per cent, with 271 holders. It expires on April 18 next year.

Earlier,Trikomsel Oke and Pacific Andes Resources Development had failed to make payments on their notes - the first defaults since 2009.

A version of this article appeared in the print edition of The Straits Times on July 30, 2016, with the headline 'Bondholders bracing themselves for losses'. Print Edition | Subscribe