Firms may get more help if things worsen

An office worker at Raffles Place, the heart of the central business district on June 3, 2015.
An office worker at Raffles Place, the heart of the central business district on June 3, 2015. PHOTO: ST FILE

Singaporean companies struggling to meet debt obligations as oil prices slump may get more support from the Government if the economy deteriorates further, according to global auditing firm EY.

UBS Group's wealth management unit warned that more defaults are possible.

"It's possible that off-Budget measures may be introduced, as the Government has done previously, to help these businesses tide over the slowdown should economic conditions worsen," said Mr Chia Seng Chye, a tax partner at EY. "The Government is already encouraging businesses to innovate and transform against increasing headwinds."

The Finance Ministry foresaw troubles from the slide in commodity prices when it announced Budget plans in March that included a loan assistance scheme to help ease cash strains at smaller businesses. The situation has since worsened, with energy industry cutbacks leading to default at oil-services provider Swiber Holdings.

About 28 per cent of the $18 billion in corporate bonds due over the next 18 months are from industries facing structural headwinds, UBS wrote in an Aug 16 note to clients. "In the absence of further bank support, refinancing this debt may prove difficult, potentially leading to more defaults over the next year," analysts Devinda Paranathanthri and Clarissa Lee wrote. "The bond market is currently not open to issuers from troubled sectors such as oil and gas, industrials, transportation, and metals and mining."

Swiber fell under interim judicial management earlier this month after running out of working capital. Marine-services peer Ezra Holdings is considering bolstering its capital, while oil and gas producer KrisEnergy has said its debt covenants could come under stress. A measure of bad loans in Singapore rose last year to the highest since 2009.

The price of brent crude oil has halved in the past two years and was at about US$50.80 a barrel yesterday in Singapore. Smaller businesses supporting major oil firms have experienced a downturn since last year and the Government is engaging firms retrenching workers to place them in adjacent industries, the Ministry of Trade and Industry said.

"This approach aims to help the oil and gas sector become more competitive in the long run, especially in a new global operating environment of lower oil prices," a spokesman said by e-mail.

The marine and offshore industry, which includes the world's two biggest oil rig builders Keppel and Sembcorp Marine, provides about 19 per cent of Singapore's manufacturing jobs.

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A version of this article appeared in the print edition of The Straits Times on August 20, 2016, with the headline 'Firms may get more help if things worsen'. Print Edition | Subscribe