Swissco's bond route surprises analysts

'Last resort' decision may be due to cash flow; more details needed for bondholders

Swissco's bonds mature only in April 2018, so the early call to restructure debt may hint at difficulties in rolling over short-term borrowings.
Swissco's bonds mature only in April 2018, so the early call to restructure debt may hint at difficulties in rolling over short-term borrowings.PHOTO: SWISSCO HOLDINGS

The decision by oil and gas provider Swissco Holdings to restructure its bonds has taken some analysts by surprise, raising questions about whether the firm's cash-flow situation could be worse than expected.

Swissco said yesterday that it is seeking to restructure $100 million worth of bonds, including a $2.85 million coupon payment due on Oct 16.

OCBC Credit Research analyst Nick Wong wrote in a note yesterday: "The announcement... at this point in time comes as a surprise to us. Debt restructuring is usually the last resort taken only when other avenues have been considered."

He had expected the rig and vessel chartering group to seek waivers from bondholders to its financial covenants, as other smaller issuers had done, rather than jump straight into a more extensive debt reorganisation.

After all, Swissco had provided US$9.6 million (S$13 million) in loans to joint ventures in the first half of this year alone, and paid US$10 million in dividends last year and another US$500,000 this year, and was profitable until the fourth quarter of last year, Mr Wong noted.

The company had even announced plans to acquire VM Marine International in April, though it said in August that the two parties were unable to reach an agreement.

Swissco's bonds mature only in April 2018, so the early wake-up call may hint at difficulties in rolling over short-term borrowings.

It said in August that it was expecting to roll over US$42.6 million. It had US$72.5 million debt due in a year and just US$9.6 million in cash balances, as at the end of June.

Swissco posted a net loss of US$4 million in the first half of this year, on poor charter rates and with four of its nine rigs off-charter.

The firm will update bondholders at a meeting next Monday. It did not give more details, but it may be looking to push back the maturity date of its bonds.

Said Mr Wong: "Steps to extend the bond could be premature and should only be considered if there are good grounds to do so, rather than an arbitrary reason at the expense of bondholders.

"Key to an equitable extension to the maturity of the bonds are concrete plans as to how management intends to utilise the time.

"For Otto Marine, it was to provide time to allow it to delist. For AusGroup, it was to provide more time for management to dispose of its port assets (with proceeds pledged to pay down bondholders)."

Mr Wong also noted that more information is needed for bondholders to make their decisions on the restructuring, such as contingent liabilities and fleet impairment disclosures.

"Given the many joint ventures and associates that Swissco utilises to hold the bulk of its rigs, and that the financing of these non-wholly owned rigs are off-balance sheet, there has to be better disclosure on Swissco's contingent liabilities with regard to these joint ventures and associates."

He added that all four rigs the group acquired in 2014 are off-charter, with some laid up since the second quarter of last year.

"More details have to be provided," said Mr Wong.

OCBC has reiterated its negative issuer profile on Swissco and withdrawn its bond-level recommendation on Swissco's 5.7 per cent notes.

Swissco shares fell 5.45 per cent or 0.3 cent to close at 5.2 cents yesterday.

A version of this article appeared in the print edition of The Straits Times on October 06, 2016, with the headline 'Swissco's bond route surprises analysts'. Print Edition | Subscribe