Two more S'pore firms seek to extend bond maturities

Ausgroup, Otto Marine among 10 listed firms loosening bond vows

Singapore-dollar bondholders, already stung by the first default since 2009, face more companies struggling to meet the terms of their debt, after two oil and gas companies sought to extend maturities.

Ausgroup and Otto Marine are among 10 Singapore-listed firms that have started a process to loosen bond vows this year, up from eight last year, according to data compiled by Bloomberg.

That includes efforts to extend the maturity of debt and loosen covenants requiring companies to maintain certain leverage levels.

Oil-related firms face $1.4 billion of Singdollar bonds maturing through 2018, with $325 million due by the year's end, according to Bloomberg-compiled data.

"We can probably expect more pain this year,'' said Mr Joel Ng, an analyst at KGI Fraser Securities. "Cash flow remains tight.''

Singapore's bad-loan measure rose to 2.25 per cent last year, the highest since 2009, as a global economic slowdown increased the number of firms showing strains.

While crude prices have recovered, energy giants have yet to restart investments that keep oil services companies in business.

Wealthy investors from the city who piled into higher-yielding debt, already suffering from PT Trikomsel Oke's default, have limited options when borrowers seek to loosen covenants, according to Credit Suisse Private Banking.

"There's no secondary market liquidity in many of these bonds, making it difficult to exit in case you view the exercise unfavourably," said Mr Neel Gopalakrishnan, an analyst at the firm.

"If a company breaches a covenant, it is technically a default. But seeking accelerated payment has more uncertainty and probably more downside."

The average credit quality of firms listed on the Singapore Exchange has deteriorated over the past five years as the ratio of operating earnings to interest expenses weakened to 2.2 times from 7.3 times, Bloomberg-compiled data showed.

In May, Ausgroup said in a filing that its consolidated total equity fell below A$160 million (S$164 million) and it was in breach of a financial covenant and "an event of default'' occurred.

The company's bonds due in October have slumped 23.4 per cent this year and are trading at 75 Aussie cents on the US dollar.

The firm's debt-to-equity ratio is 106 per cent, Bloomberg-compiled data showed. The average ratio of 712 Singapore-listed companies has risen to 43 per cent from 16 per cent five years ago, the data showed.

Ausgroup, which makes well- head platforms and operates out of Australia, Singapore and Thailand, is proposing to extend the maturity of its $110 million notes due on Oct 20 by as much as two years.

Otto Marine, which owns a fleet of vessels to support oil companies, said in a statement dated July 15 that a resolution was passed by bondholders to postpone the maturity of its $70 million 7 per cent notes due on Aug 1 to Feb 1 next year.

The company's controlling shareholder is seeking to delist the company and plans to use a loan extended by RHB Bank to repay bondholders, assuming the delisting is completed.

Bank of Singapore said that companies are being pre-emptive in seeking to loosen covenants and that it expects that most companies should be able to survive as long as oil prices stay stable.

Some companies have also sought to strike a balance by providing more security for investors, such as setting aside funds.

BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on July 19, 2016, with the headline Two more S'pore firms seek to extend bond maturities. Subscribe