Penny Stock DBS Couldn't Save Roils Singapore Oil Hub, Banks

Penny Stock DBS Couldn't Save Roils Singapore Oil Hub, Banks
With a market value of $37 million, Swiber Holdings hardly seemed the kind of company to cause a ripple in the financial markets. Yet, the near-liquidation of the penny-stock firm has set off tremors in Singapore's banking and energy industries.

(Bloomberg) -- With a market value of S$50 million ($37 million), Swiber Holdings Ltd. hardly seemed the kind of company to cause a ripple in the financial markets. Yet, the near-liquidation of the penny-stock firm has set off tremors in Singapore’s banking and energy industries.

The Singapore-based supplier to offshore oil and gas explorers, facing about $50.5 million of demands last month from various creditors, said July 29 that it seeks to operate under court supervision as it attempts to turn around its business. Two days earlier, it had filed a petition for liquidation, which was subsequently dropped following talks with lenders.

While Swiber is the latest victim of the collapse in crude prices, the spending cuts by explorers such as Royal Dutch Shell Plc and Statoil ASA are testing Singapore’s position as a hub for the marine and offshore industry that accounted for 6.9 percent of the city-state’s manufacturing output in 2015. The rut is also hurting the nation’s lenders including DBS Group Holdings Ltd., which said it may recover only half of its exposure of about S$700 million to Swiber and its units.

"The sector has been a drag on the overall gross domestic product," said Song Seng Wun, an economist at CIMB Private Banking in Singapore. "The period of downturn could last longer. There will be pressure on all the players -- large and small."

As a global financial hub, Singapore provides for 25 percent to 35 percent of commodities trading in Asia, according to International Enterprise Singapore, a government agency. It is also Asia’s largest physical oil trading hub. Additionally, it is home to the world’s largest bunkering port.

Singapore’s marine and offshore industry, which includes the world’s two biggest oil rig builders Keppel Corp. and Sembcorp Marine Ltd., provides for 19 percent of the island-nation’s manufacturing jobs. The halving of Brent crude prices in the past two years is posing a risk to the sector and the country’s economy, which is estimated to expand 1.8 percent this year, the slowest pace in seven years, according to a Bloomberg survey.

The marine and offshore industries in Singapore aren’t alone in facing challenges. Their counterparts in South Korea are undergoing restructuring after posting losses last year spurred by delivery delays. State-owned Korea Development Bank led other creditors to push shipyards to draw up aggressive measures to raise funds, cut capacity and jobs.

For a chronology of events on Swiber’s distress, click here.

Singapore’s Straits Times Index has fallen 3.9 percent between the time Swiber’s woes were made public and the end of Friday. The FTSE Straits Times Oil & Gas Index, which tracks the marine and offshore engineering companies, dropped 6.3 percent during the same period, while Ezra Holdings Ltd. slumped 23 percent and Ezion Holdings Ltd. slid 11.6 percent.

Swiber’s shares plunged to 10.9 Singapore cents before trading was suspended on July 28, from as high as 88.4 Singapore cents about two years ago.

For the financial industry, Swiber’s distress augurs more trouble. 

DBS, which provided a bridging loan to Swiber before the liquidation filing, has the biggest exposure to the troubled firm among Singapore’s banks, according to court documents.

The bank’s exposure to Swiber amounted to S$721 million, according to a presentation accompanying its results Monday. Of that total, S$403 million was to finance working capital for two projects, S$197 million was for June and July bond redemptions, and S$121 million was for mainly secured term loans for vessels, property and hedging purposes. DBS said July 28 it only expects to recover about half of the exposure to Swiber. About S$300 million of those loans are secured by collateral, including property and vessels, according to the lender then.

Credit Negative

DBS’s specific allowances, or provisions for bad debts, rose to S$336 million in the June quarter, including S$150 million for Swiber, the bank said. Total allowances surged from S$132 million a year ago. The extra provisioning for Swiber would cut DBS’s 2016 earnings by 3 percent, Goldman Sachs Group Inc. said in a July 29 report.


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