Working capital crunch may have been straw that broke Swiber

As the High Court hearing on Swiber Holdings Ltd's application for judicial management progressed on Tuesday after trading hours, further clues emerged on the chain of events leading to the July 28 winding-up petition that shook the offshore and marine (O&M) sector, the banks and the stock market before the weekend.

The Business Times understands that Swiber's board of directors may have decided to throw in the towel after realising that there may not be any effective working capital to sustain its ongoing business concerns in the O&M sector.

Sources said that Swiber's cash on hand was a fraction of the US$25.9 million (S$34.7 million) in letters of demand from creditors as at July 26, believed to be mainly trade in nature.

While its now rescinded liquidation bid surprised many in the market who have seen Swiber scrape through two major bond deadlines this year on June 6 and July 6, trade creditors of the group are likely to have been among the first to detect the severity of cash flow problems faced by the listed entity and its subsidiaries.

Rumours had been rife in the O&M sector, one industry source said, while another told BT that Swiber has outstanding trade debts of over a year old. Swiber first announced on July 8 that it had received letters of demand of US$4.76 million and these ballooned to US$50.5 million on July 29.

This could be just the tip of the iceberg of Swiber's cash flow problems, taking into account the group is said to have US$297.7 million of trade payables as at March 31, 2016.

But the final blow, as some sources suggested, was when the management of Swiber realised its key offshore marine subsidiary, Swiber Offshore Construction Pte Ltd (SOC), no longer has the working capital to carry on with its projects.

The working capital of SOC had dried up because Swiber has allegedly pledged all proceeds that were due from three key ongoing contracts contributing to its ongoing cash flow towards repaying a loan raised to redeem the S$75 million medium term notes (MTN) due on July 6.

Sources said, DBS, which BT reported as the major bank behind the July 6 MTN redemption, also contributed to redeeming Swiber's MTN due on June 6. The bank did not fully comment on its role in these bond redemptions, but events leading up to the dramatic withdrawal of Swiber's liquidation bid in favour of a judicial management application on July 29 clearly indicated that none of Swiber's bank creditors would have supported the wind-up petition.

Instead, the banks would have preferred Swiber to file for judicial management, under which the listed group and its subsidiaries can still continue to generate cash from its ongoing projects.

The question that begged to be answered however, is: Were the banks as major creditors fully aware business could not carry on as usual at the listed group and key subsidiaries given the dire state of their finances before extending further loans towards the redemption of the group's bonds due on June 6 and July 6.

In particular, the conditions of and the events before and after the July 6 bond redemption were critical because Swiber would have been made aware a second lifeline in the form of AMTC Ltd's US$200 million preference share subscription in the group's new wholly-owned subsidiary, Swiber Investment Ltd (SIL) would not have materialised.

Swiber was also believed to have acted on the assumption that the AMTC share deal would have materialised when first agreeing to take up either a loan or credit facility to meet its bond deadlines through to July 2016.

By late June, SIL had reportedly received confirmation that AMTC had completed its due diligence and would remit the US$200 million that eventually did not materialise.

Sources said that Swiber then reached out to its major bank creditors for financial assistance towards redeeming the MTN due on July 6. The listed group was believed to have been granted either a loan or credit facility tied to among other conditions, assigning proceeds from its ongoing projects to the bank behind the facility.

BT was informed that Swiber's appointed provisional liquidator, KordaMentha Pte Ltd, had put together a report on the cash flow of the group.

Sources said that the cash flow report had gone to the bank behind the credit facility although this could not be verified as at press time.

DBS acted as the bookrunner for Swiber's June 6 MTN and the co-bookrunner along with ANZ for its July 6 MTN. The bank told BT that it extended financing to Swiber in the form of a bridging loan to be repaid upon expected equity injection from an investor that failed to follow through on what was agreed. It did not identify the bond that it helped redeem or the terms of the loan although the market had questioned how far the bank's position on and role in the bond redemption may have swung Swiber's decisions leading to the winding-up petition and subsequently its application to come under judicial management.

Industry watchers, however, also pointed out the decision to wind up a listed group could only possibly be made by its board of directors. With respect to Swiber's board, NUS professor Mak Yuen Teen identified several red flags. He described Swiber's board as being controlled by the major shareholders and management, making up six of the nine directors, which leaves independent directors in little influence in board decision-making and oversight. He also noted the listed group has "an exco with extensive powers (that makes) most of the key decisions without the involvement of the independent directors".

This draws more questions on the extent to which Swiber's board can take into consideration stakeholder interest in the troubled listed group when reaching major corporate or loan restructuring decisions.

Stakeholders of Swiber, including some unsecured creditors and shareholders, have also challenged the listed group's handling of corporate disclosures including those pertaining to the winding-up petition and the deferment of a US$710 million field development that once accounted for 70 per cent of the group's outstanding order book.

This article was first published on August 3, 2016.
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