O&M players eyeing govt backstop for debt pool

Embattled offshore and marine (O&M) players' ultimate wish list may be for the state to backstop loans to spur banks to lend but for now, they are seeking some "low hanging fruits" for a reprieve amid wrenching times.

Higher working capital loans, lower rents for JTC facilities and relief from foreign worker levy are some of the "immediate relief" being sought by the O&M players from the government, Singapore Business Federation (SBF) chief executive Ho Meng Kit told The Business Times.

These possible "mitigating actions" have cropped up in the dialogues between industry players and the SBF, said Mr Ho, adding that the body will assess them and may include the appropriate suggestions specific to the O&M sector in its recommendations for the Singapore budget for 2017.

SBF, a chamber that champions business interests here, has been actively talking to O&M firms, banks and government agencies on possible actions that the parties can undertake to soften the blow of cheap oil, deep budget cuts, thinning margins that have exacerbated the industry's debt woes.

"A lot of firms have sought SBF's help . . . as a communication channel to the government on the tough ground realities and to suss out how the government can help," said one top executive of an offshore firm.

In response to BT queries, Mr Ho said: "The O&M sector is going through turbulent times and heightened anxiety arising from Hanjin Shipping's recent bankruptcy and Swiber's default on its bonds."

The tough times could persist longer than general expectations of two to three years.

"Operating and financing expenses had increased. Trade receivable collection have also increased to as long as nine months. The sector's lowered profitability means that companies were more likely to prioritise cost over quality, resulting in suppliers of higher-end services losing business to low-cost producers," said Mr Ho.

On the back of that, industry observers deem the suggested efforts, such as foreign worker levy reliefs and lower rent for the JTC facilities, as "low-hanging fruits" which while helpful, are not material as they don't move the needle for companies doddering on high debt and facing cash flow crunch.

According to industry wags, certain O&M players are lobbying to aggregate their debt into a pool and seeking the government to act as a backstop for these loans from banks. This way, the local banks, which have so far been measuredly appreciative of companies' debt woes yet risk averse amid lack of visibility of a sector recovery, may be more willing to lend, say proponents.

"Without a doubt, banks are more cautious now after the Swiber incident. The foreign banks were the first to pull out. The local banks are nervous but some seem more willing to step up and are open to discussions," said the chief executive of another O&M firm.

Not everyone is holding out hope for a significant "intervention" by the government, though.

"The current problem is very situational. It relates specifically to a sector unlike the global financial crisis - much bigger - where the government stepped in to subsidise wages and guaranteed bank deposits.

"In today's context, banks can be motivated to lend but beyond that, I'm not sure what else the government would want to do," said an industry veteran.

Meanwhile, some consolation appears to have come from lenders and bondholders, providing big relief to the hard-hit firms in the sector.

Mencast Holdings, whose S$50 million bonds were the earliest due after Swiber moved for judicial management and set off panic in the sector, got a much-needed break last month. UOB lent a helping hand through a nearly S$75 million facility which was partly used by Mencast to redeem the bonds that matured this month.

Another worrying case was Marco Polo Marine's S$50 million bonds due next month; based on a meeting last week with noteholders, the firm said that it would seek to extend the maturity date of the debt papers. If the company gets its way - its announcement on the matter seemed confident enough - it would spare the sector further tumult which a default situation would definitely trigger.

Similarly, AusGroup launched a consent solicitation exercise over a week ago to extend its S$110 million notes due next month for another two years which industry observers reckon is likely to pull through.

"Logically speaking, as a rational investor, if noteholders don't allow the issuer to roll over their debt, the firm will collapse and they get very little. But if the firm survives, they can get their money back," said an analyst.

This article was first published on September 22, 2016.
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