Shipping service sector faces choppy waters

A container ship at PSA's Tanjong Pagar terminal. Slowing global trade and falling crude oil prices have shrunk the revenues of shipping firms here, leaving many incapable of paying back large debts.
A container ship at PSA's Tanjong Pagar terminal. Slowing global trade and falling crude oil prices have shrunk the revenues of shipping firms here, leaving many incapable of paying back large debts.PHOTO: REUTERS

It has been a rough week for Singapore's shipping service industry and the going could get even tougher next year with record debt falling due.

Rickmers Maritime, which operates container ships, said yesterday it is asking creditors for leniency on about US$253 million (S$346.3 million) of debt. 

Marco Polo Marine, a provider of barges and tugs for coal, steel scrap and iron ore, said on Tuesday it is asking bond holders for approval to delay paying S$50 million of securities due next month.

The nation's shipping and other logistics firms face a record US$1.8 billion worth in note repayments next year, data compiled by Bloomberg show.

Container throughput shrank 8.7 per cent last year as global trade slowed, while slumping crude prices have hurt firms that service the energy industry. 

Swiber Holdings, which operates construction vessels to support the oil industry, defaulted last month, while Ezra Holdings said last week that it had held talks on potential fundraising. Sembcorp Marine and Keppel have reported slumping profits.

"It doesn't look like the worst is over for the maritime industry," said Mr Joel Ng, an analyst at KGI Fraser Securities. "It's tough for the creditors. The banks need to continue to provide liquidity, given that the industry's cash flows are tight."

Singapore's bad loans rose to 2.25 per cent of the total last year, the highest since 2009.

Oil service firms are also facing mounting difficulties as crude prices have dropped to about half the prices in 2013, forcing energy giants to put investment plans on hold.

"The shipping and oil and gas space has really been a minefield in the bond market," said Mr Terence Lin, assistant director of bonds and portfolio management at fund researcher iFast. "One of the positives from this is that there'll be increased scrutiny on very levered companies, and a push for management to take corrective plans or pre-empt liquidation outcomes."

Rickmers Maritime will not be able to repay US$179.7 million of senior debt due next March and the interest and principal on S$100 million of notes due in May, it said in a filing yesterday.

Marco Polo Marine told some noteholders of its debt-delay plan at a meeting Tuesday, and those present "appeared generally supportive", it said in an exchange filing. It will hold another meeting on Sept 16 on the debt-extension proposal, which it did not disclose.

"The boards and management teams of the offshore and marine bond issuers still seem to be in denial of the need to do proper balance sheet restructuring," said Mr Kurt Metzger, restructuring consultant at GEM Advisory.

"Bond holders are facing significantly higher risk and should be looking for significantly higher returns and improved structures."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 16, 2016, with the headline 'Shipping service sector faces choppy waters'. Print Edition | Subscribe