SINGAPORE - So far, the investment community has been concerned about the collateral damage which the dramatic collapse of Swiber Holdings is having on the share prices of other oil services providers, as well as the banks that were its lenders.
Close attention is also being paid to the creditworthiness of the various offshore and marine firms. This is because Swiber's collapse had caught the stock market off-guard despite the many red flags issued on the deepening slump faced by the sector since last year as oil prices tanked.
What may be far more damaging is the danger that may lie beneath the balance sheets of these offshore plays.
As stockbroking firm UOB Kay Hian points out, it is the business transacted among the firms within the sector that may pose a significant threat going forward, given the possible snowballing effect that may ensure if any player were to go belly-up.
We see this with Pacific Radiance announcing a US$10.1 million provision relating to the doubtful trade receivables owed by Swiber's affiliates.
Said UOB Kay Hian: "Pacific Radiance's receivables provision brings to light the issue of non-publicly disclosed cross-transactions among Singapore offshore and marine plays. The notion of a large number of unknowns poses a serious threat to our investment thesis for companies within the sector."
The brokerage also questioned if placing Swiber under judicial management to allow it to operate while looking for life-lines is only delaying the inevitable.
In its opinion, a judicial management only provides temporary relief as it is only valid for 180 days unless extended by the courts.
The likelihood of a turnaround within this short span of time is next to zero. Even if oil prices stage a miraculous rebound during this period, a recovery in earnings in the sector is not to be expected as the prices charged by the offshore and marine companies for the various services they render will stay depressed for longer.
As such, UOB Kay Hian noted that many offshore and marine companies will be able to stay afloat so long as they can continue to count on their banks for support.
"Without their support, companies are likely to run into cashflow problems that either sees them default, or require further capital raising," it added.
So should the banks continue to offer support or pull the plug?
They are caught between a rock and a hard place.
If they don't provide the heavily-indebted marine and offshore firms with further cash, they run the risk of their non-performing loans mushrooming in a big way if these firms fail subsequently.
Support these flagging companies and it may turn out to be a case of throwing good money after bad. There is also no telling when the slump might end.
The precedents established in the past 30 years are hardly reassuring.
When oil prices similarly halved in the mid-1980s like now, it took a good 10 years before interest revived in a big way, and that was because of China's emergence as a major energy consumer. Can banks afford to stay the course for so long?
The other question to ask is just how big a headache the banks are facing on their oil and gas exposure.
A separate report by UOB Kay Hian shows that the total oil and gas exposure for DBS Bank is S$17 billion. For OCBC Bank, the exposure is S$12.6 billion, while in the case of United Overseas Bank, the exposure is S$9.3 billion.
These are big enough numbers to make investors sit up and pay attention. Of course, most of these loans will stay healthy. However, the ones that do turn sour are likely to give further grief to investors when they torpedo stock prices.