News analysis

Fund vacuum last straw as Swiber bites the dust

Oil price slump and failure of equity fund to pay for $268m shares deal heavy blow

The protracted slump in oil prices and the failure of a private equity firm to buy US$200 million (S$268 million) preference shares helped send Swiber Holdings over the edge, market observers said.

The combined hit proved more than the troubled oil firm could deal with, forcing it to apply for a liquidation last Thursday.

But there was another twist to come: Insiders told The Straits Times yesterday that it was DBS, one of the largest lenders to Swiber, that had pressured the company to withdraw its liquidation bid late last Friday and put itself under judicial management (JM) instead.

"DBS would have taken a huge hit on their books if Swiber went through liquidation," an analyst with a local brokerage said. "Under a JM, Swiber would have 180 days to address some of the debt and sell assets at an orderly pace."

One key pressure point behind Swiber's initial decision to liquidate was the failure of a preferential share placement to London-based private equity firm AMTC.

The firm was to have bought US$200 million preference shares in Swiber unit Swiber Investment, a move that would have provided much-needed liquidity for the company to stay afloat. Swiber on July 11 said it had failed to get a US$200 million equity injection from AMTC.

It is not clear why AMTC didn't buy the shares. AMTC on June 27 informed Swiber Investment of the intent to extend the completion date but this was denied.

An oilfield worker on a drilling rig. The slump in crude prices over the past two years has been the biggest contributor to Swiber's woes, as oil majors cut capital expenditures and offshore projects became more scarce. PHOTO: REUTERS

"Had the AMTC funds come in, that would have made a big difference and enabled them to go on as a going concern instead of filing for liquidation," a legal industry source said.

But the slump in crude prices over the past two years has been the biggest contributor to Swiber's woes, as oil majors cut capital expenditures and offshore projects became more scarce, putting strains on the finances of local marine companies.

"Without a sustained recovery in the oil market, something was bound to erupt. Already, the collection of receivables on Swiber's bigger projects was challenging. There was a lot of expenditure upfront, and because collections were challenging, that put a strain on cash flow," the legal source said.

Market observers concur that there weren't enough obvious signs to forewarn shareholders of Swiber's drastic liquidation move.

Swiber's management should have been forthright that the company was in dire straits, said Mr Robson Lee, partner at Gibson Dunn & Crutcher LLP, adding that no outsider would have had the faintest clue that the winding up was coming.

"There were insufficient warning signs, or SGX would not have responded in the manner that it did, and say it will investigate whether Swiber flouted corporate disclosure rules," he added.

The Singapore Exchange (SGX) has said it will investigate the developments in the company.

SGX chief regulatory officer Tan Boon Gin has noted that key disclosures, including the first set of announcements on July 8, were made only after queries from the exchange. He added that any breaches of listing rules by Swiber could result in monetary penalties.

There were signs that Swiber's financial problems had been brewing for more than a year.

Swiber fully redeemed its $95 million 6.25 per cent three-year bond that matured on June 8 last year, but still faced massive debt repayments. Even though it had raised $45.9 million via a rights issue in January 2015, Swiber, as of last July, still faced $305 million worth of debt maturing this year and $660 million due in 2017.

But there were signs that the liquidation was inevitable, given the way Swiber was refinancing its bonds, according to insiders. One source said Swiber was taking on new contracts and pledging these for loans from banks to pay off bonds.

"Banks were making loans to Swiber because it had a US$1 billion order book," the source said.

But the deferral of a field development project off West Africa valued at US$710 million put a huge drain on Swiber's finances as it accounted for at least 70 per cent of its order book at the time of the deal's award.

A version of this article appeared in the print edition of The Straits Times on August 03, 2016, with the headline 'Fund vacuum last straw as Swiber bites the dust'. Print Edition | Subscribe