Singapore oil debt pain spreads as company ties make situation worse

A file picture of Ezra Holdings' subsea construction vessel. Bonds in Singapore oil services company Ezra Holdings Ltd have plunged to 65 cents.
A file picture of Ezra Holdings' subsea construction vessel. Bonds in Singapore oil services company Ezra Holdings Ltd have plunged to 65 cents. PHOTO: EZRA HOLDINGS

HONG KONG (BLOOMBERG) - Southeast Asia's oil debt is feeling more pain as connections between companies in the industry make a bad situation worse after Swiber Holdings' failure in July.

Bonds in Singapore oil services company Ezra Holdings Ltd have plunged to 65 cents on the Singapore dollar according to prices from DBS Group Holdings, partly as its stake in Malaysian counterpart Perisai Petroleum Teknologi Bhd slumped. Notes in Singapore's Pacific Radiance Ltd were at 42 cents according to DBS prices, after it was forced to make a provision of US$10.1 million for doubtful receivables from Swiber.

Southeast Asian oil services firms are facing mounting difficulties as crude prices have dropped to about US$46 a barrel, less than half the prices in 2013, forcing energy giants to put investment plans on hold. That's taking a toll on countries such as Singapore, where the marine and offshore industry provides about 19 per cent of manufacturing jobs.

"There's definitely some spillover effects if a company goes under," said Joel Ng, an analyst at KGI Fraser Securities in Singapore.

Singapore oil services companies are also being hurt by failures across the world. Sembcorp Marine Ltd, whose Singapore dollar bonds maturing 2021 traded at 93.5 according to prices from DBS, was affected when its main customer Sete Brasil Participacoes filed for bankruptcy in April. The Singapore rig builder made S$329 million of provisions during its fourth quarter ended December 2015 for contracts it had with the Brazilian firm.

Perisai meanwhile has twice delayed the delivery of a drilling rig it had contracted Sembcorp Marine's unit to build.

A spokesman for Sembcorp Marine said that the firm believes that its S$329 million provision for its contracts with Sete Brasil remain adequate. He added that the firm's additional provisions of about S$280 million for the financial year 2015 for prolonged rig deferrals and possible cancellations are also sufficient currently.

Sembcorp Marine is committed to supporting its customers during this challenging period while preserving its commercial interests, the spokesman added.

Shares in Kuala Lumpur-based Perisai, which also charters vessels for towing equipment, have fallen 33 per cent since it said on Aug.18 it would negotiate with holders of a bond maturing on Oct 3. The S$125 million of 6.875 per cent notes were quoted at 55 cents by DBS.

Perisai said in a filing on Aug 24 that "continuing depressed oil prices" have caused uncertainty on the outlook for oil and gas asset demand. It added that all covenants relating to financial ratios applying to the group were fully complied with, with the exception of the interest coverage ratio. That ratio was "slightly below the required minimum" as at the financial period ended June 30, and the group is "taking active steps in addressing this slight deviation," it said.

Ezra, which had S$1.2 billion of total group borrowings and debt securities as of May 31, said in August it is focusing on deleveraging its balance sheet and selling non-core assets to raise capital. The firm, whose services including making wellhead platforms, holds its 20.6 per cent stake in Perisai through subsidiaries.

Pacific Radiance, which posted a total comprehensive loss of US$64.7 million during the second quarter ended June said its filing that "it is mindful that the challenging times ahead may last another two to three years."

KrisEnergy Ltd, whose Singapore dollar bonds maturing 2018 were at 64 cents according to DBS prices, said in August that its debt covenants may come under stress and that it is exploring equity issuance, refinancing and asset sales to strengthen its capital structure. The firm's local currency notes due in 2017 were at 67 cents, according to DBS prices.

The greatest concern now is how the mounting industry challenges "will affect the oil services companies in getting bank financing," said Chee Keong Yeak, an analyst at Maybank Kim Eng Securities Pte. "And ensuring that banks continue to support them."