DBS caught off guard by Swiber's 'swift implosion'

Other offshore firms may face knock-on effects in second half of the year: Bank CEO

Offshore services firm Swiber Holding's financial implosion was so rapid and sudden its biggest lender DBS Bank was caught off guard, DBS Group Holdings chief executive Piyush Gupta said yesterday.

He added that other offshore firms could face knock-on effects in the second half of this year.

Recounting the Swiber saga, Mr Gupta noted that "Swiber imploded in six weeks". "This thing unravelled between late May and mid-July. So when people say you should have known, none of the indicators showed it," he said.

Offshore services firm Swiber stunned the market late last month by seeking to be wound up - then switching tack to place itself under judicial management.
Offshore services firm Swiber stunned the market late last month by seeking to be wound up - then switching tack to place itself under judicial management. PHOTO: SWIBER HOLDINGS

  • $721m

    DBS' exposure to Swiber as of July 31.

    $403m

    Of the $721 million, this amount is to finance working capital for two projects.

    $197m

    For June and July bond redemptions.

    $121m

    For mainly secured term loans for vessels, property and hedging purposes.

CLASSIC BANKER'S DILEMMA

If the projects get completed, I can recover $400 million. If they don't get completed, and the company folds, I'm out $400 million. It's a classic banker's dilemma. Do we put in more money to recover more or not?

MR PIYUSH GUPTA, DBS Group Holdings' chief executive.

"At the end of June, Swiber had zero overdues with us on any outstanding working capital. Its order backlog was $1.35 billion in February. By every dimension, at the end of the first quarter, you would say that the company was doing well. There's nothing to tell you until March or April that there was any problem," he said at a press conference on DBS' second-quarter results.

Late last month, Swiber stunned the market by seeking to be wound up - then switching tack to place itself under judicial management.

Mr Gupta also defended the bank's decision to extend additional loans to the company, which was based on two key factors.

One was the expectation of a US$200 million (S$270 million) cash infusion that was supposedly coming from London-based private equity firm AMTC, which had expressed interest in investing in Swiber. When the investment was delayed, Swiber turned to DBS to borrow additional sums to pay off bond redemptions that were due in June.

A month later, when another bond redemption was due, DBS decided to extend additional loans because, by then, there was a real risk of the company failing as there was still no investment from AMTC.

At the time, Swiber was handling two projects that, if completed, could see the bank retrieve some money, said Mr Gupta.

"If the projects get completed, I can recover $400 million. If they don't get completed and the company folds, I'm out $400 million. It's a classic banker's dilemma. Do we put in more money to recover more or not?"

The best way for Swiber to recover money was to get the projects done, he said.

Mr Gupta also remained uncertain if AMTC's funding was still on the table, despite a Business Times report that said AMTC was still keen on the investment.

Meanwhile, Swiber said total claims against the firm totalled US$99 million as of last Thursday.

DBS' total "exposure" - that is, all its loans, bonds and guarantees - to the oil support services sector is worth about $7 billion to firms other than Swiber.

Of that total, Mr Gupta said $2.7 billion was loaned to 90 companies, and one-third of that portfolio has weakness, as some of these companies are Swiber-linked. "So there will be some contagion in the second half of this year," he said. Another $2.3 billion was to five oil services companies, one of which "has weakness".

Last month, DBS' Swiber exposure rose about $70 million to $721 million. Of that, $403 million was to finance two projects, $197 million was for bond redemptions - repaying investors who bought bonds - in June and July, and $121 million was for mainly secured term loans for vessels, property and hedging purposes.

"Two-thirds of our exposure were in loans, and one-third in other credit exposures such as performance bonds," DBS chief financial officer Chng Sok Hui said.

The bank has set aside $400 million of allowances for its exposure to Swiber. Of this, DBS drew down $250 million from its own general allowance reserves, a fund that banks have to set aside for rainy days, while it took a charge of $150 million.

It expects to recover Swiber money from several sources: tangible assets such as property and vessels, and bills to be paid, Ms Chng said.

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A version of this article appeared in the print edition of The Straits Times on August 09, 2016, with the headline 'DBS caught off guard by Swiber's 'swift implosion''. Print Edition | Subscribe