Debt restructuring still a big hurdle for offshore marine firms

The road to restructuring remains bumpy for many offshore and marine companies amid the industry downturn. Banks are exercising extra caution in handling loans for the troubled sector, given the massive fallout from Swiber's collapse and the possibil
The road to restructuring remains bumpy for many offshore and marine companies amid the industry downturn. Banks are exercising extra caution in handling loans for the troubled sector, given the massive fallout from Swiber's collapse and the possibility of Ezra going down the same path.ST PHOTO: LIM YAOHUI

The road to restructuring continues to be riddled with potholes for many offshore and marine companies here amid the prolonged and unforgiving industry downturn.

Firms told The Straits Times that banks are taking a much more cautious stance when it comes to credit assessment, especially after Swiber Holdings - once a market darling - became the industry's first major casualty last year.

Ezra Holdings' bankruptcy filing in the United States last month only added to the panic. 

One company, which declined to be named, told The Straits Times its attempts to extend or restructure a secured loan in the triple-digit million range over the past two years have been unsuccessful as its lender was simply "not open to any discussion on restructuring the loan".

The firm owns offshore support vessels and provides services to oilfield companies in production projects.

Its chief executive - "Mr Lee", though that is not his real name - said the company has already paid off 75 per cent of the loan since taking it up two years ago, even in the thick of the oil price collapse.

"We've been paying up even in this very tough climate. It is only for this last tranche of payment that we really need help," he said. He took out a personal loan to make the previous tranche of repayment.

  • $90m
    Value of applications for Spring Singapore's bridging loan scheme approved as of February.

    100
    More than this number of firms are interested in the scheme, said Mr Lim Hng Kiang, Minister for Trade and Industry (Trade).

Mr Lee has also tried to find another bank to take over the loan but to no avail as "the banks just don't want to touch oil and gas", given the ongoing downturn.

It has missed the deadline for the last tranche of the loan repayment by a few weeks, but he said he is in the process of raising money to pay off the remaining debt. 

Mr Lee noted the bank has said several times it would take steps to force-sell the asset in the market if the company is unable to make payment. Given the still-poor demand in today's market, this could mean selling the asset at fire-sale prices.

"All we need is more time to become more liquid, to work things out. But right now, we're choked until we can't breathe," he said.

Meanwhile, other firms said they are working out possible debt refinancing solutions with their lenders, although they agreed the whole restructuring process has become more drawn-out.

Mr Michael See, chief executive of delisted Otto Marine, said: "With more and more companies going under, the banks have become more rigid in their credit reviews, and the process is now much longer."

He noted that back when the industry was booming, a credit review process for a new loan was typically completed within one or two weeks. The same process today, however, can take months, while for debt restructuring, it can even take as long as half a year.

"In today's market, for a company to be able to refinance its debt, it really comes down to a few things: whether the bank is confident about the company's management and its shareholders, and whether the company has contracts and execution deliverables," said Mr See.

"Nonetheless, the rapport and relationship with the lenders are key to any successful restructuring."  

The Straits Times understands that Otto Marine is in the process of restructuring its bank loans, worth around $300 million. The company was delisted from the Singapore Exchange's mainboard in October last year after being taken private by its controlling shareholder.

It comes as little surprise that banks are exercising extra caution in handling loans for the troubled offshore and marine sector, given the massive fallout from Swiber's collapse and the looming possibility of Ezra going down a similar route.

DBS Bank, for instance, has a $721 million exposure to Swiber, which is now under judicial management. It is also one of Ezra's largest unsecured creditors with claims totalling US$281.4 million (S$395 million), on top of other exposure to the group and its related units.

But the longer it takes for a loan to be successfully restructured, the tighter the noose becomes around a company short on cash.

Banks The Straits Times spoke to declined to comment on the proportion of loans they have restructured for the sector so far, but said they have made adequate provisions.

Some - including Singapore's Big Three of DBS Bank, OCBC Bank and United Overseas Bank - have also said they are taking steps to help customers ride out the downturn.

A DBS spokesman said the bank continues to support offshore marine firms with "good fundamentals, cash flow and a clear plan on how to ride out current difficulties" by restructuring their loans. "We may also grant new loans for their working capital or assets purchase to support and fulfil viable contracts with strong counterparties."

Ms Koh Ching Ching, head of group corporate communications at OCBC, said: "We believe this sector will continue to be very important for our economy. It is our intention to work with our customers in the sector and help them ride through this cycle."

Similarly, Mr Amos Ong, head of global banking at Maybank Singapore, said the bank is working with its clients, including coordinating efforts to tap relevant government assistance schemes where possible.

Industry players said the Government's recent measures to stabilise the industry financially are a shot in the arm, albeit a belated one.

Spring Singapore's bridging loan scheme allows firms to borrow up to $5 million each for a maximum of six years to finance operations and bridge short-term cash flow gaps, with the maximum loan for each borrower group capped at $15 million, while IE Singapore's internationalisation finance scheme has been expanded to $70 million per borrower group, from $30 million.  

The Government will take on 70 per cent of risk for both schemes, expected to catalyse about $1.6 billion in loans over one year.

Mr Lim Hng Kiang, Minister for Trade and Industry (Trade), said at the Committee of Supply debate last month that applications amounting to more than $90 million of loans had been approved as of February.

"Based on feedback from participating financial institutions, we expect the pipeline demand to be strong, with more than 100 companies already indicating interest in the scheme," he said.

Still, in a capital-intensive industry such as this, these funding support sums may represent just a fraction of a company's debt.

Mr Lee Ee Win, managing director of ship repair and engineering firm OceanMaster Engineering, said Spring's bridging loan will definitely help tide cash-strapped companies over the next few months. "But it won't help to address the bigger and more persistent problem - high costs," he said.

A version of this article appeared in the print edition of The Straits Times on April 10, 2017, with the headline 'Debt restructuring still a big hurdle for offshore marine firms'. Print Edition | Subscribe