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Financial support for troubled offshore industry

Fri 12 May 2017

Financial support for troubled offshore industry
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The sharp slump in the offshore oil and gas industry and related engineering and other support services has created major challenges for companies in this sector based in Singapore, which raises questions about the future prospects of some companies and even their survival. Such is the importance of this activity to Singapore’s maritime industry and the local economy that the Government decided that it needed to step in to offer some relief in an effort to give companies a better chance of getting through the downturn until the market recovers.

In November 2016 Singapore’s Ministry of Trade and Industry confirmed that the system of bridging loans (BL) for marine and offshore engineering companies would be re-introduced and the International Enterprise (IE Singapore) Internationalisation Finance Scheme (IFS) would be enhanced.

The Ministry of Trade and Industry said that the schemes aim to facilitate companies’ access to working capital and financing. The BL scheme will help Singapore-based marine and offshore engineering companies finance their operations and bridge short-term cash flow gaps. Eligible companies will be able to borrow up to S$5 million each, for up to six years, with a maximum total lending for each borrower of $15 million. Companies whose main activities are in the marine and offshore engineering industry, such as shipyards, their contractors, offshore services providers, exploration and production companies, oil and gas equipment and services companies, and their suppliers, are eligible to apply. Companies must have at least 30 per cent local shareholding to qualify.

IE Singapore’s existing IFS, which provides project and asset financing support for companies will be enhanced with the maximum loan increased from S$30 million to S$70 million per borrower group. The Government is taking on 70 per cent of the risks for these loans.

The ministry stressed that these are one-off measures intended to help stabilise the industry.

Minister for Trade and Industry (Industry) S Iswaran said: “The marine and offshore engineering industry, in particular, is facing a deep and prolonged downturn due to cyclical and structural forces.  Consequently, the industry’s financing challenges have intensified in recent months. These targeted measures aim to help preserve the industry’s core capabilities which have been built up over the years and will be important for seizing future opportunities.  The Government will continue to monitor the economy closely and stands ready to act if necessary.”

The two revised schemes became available in December 2016 and were expected to generate about US$1.6 billion in loans during their first year. The minister also announced S$107 million to help develop a new research centre for the industry.

These moves were welcomed by the Singapore Shipping Association (SSA) which was involved in developing the measures. It said that they will “help preserve the marine and offshore engineering industry’s core capabilities in the face of very severe financing challenges, arising from the prolonged weakness in the oil price, coupled with the great uncertainty facing the global economy.”

SSA president Esben Poulsson said: “Marine and offshore engineering companies are a vital part of Singapore’s maritime ecosystem, and they have been affected particularly badly by the general economic slowdown. Whilst the maritime industry fully recognises that the Government cannot be expected to solve all our difficulties, we nonetheless very much appreciate the introduction of these well thought-out, targeted measures.”

Singapore-based shipmanager Thome Ship Management also applauded the decision. Claes Eek Thorstensen, president of Thome Group, commented: “A healthy marine industry is crucial to the Singapore economy and so it is good news that the Government is taking a serious look at how it might help those sectors of the industry struggling to stay afloat. It is important that Singapore maintains its central position in the Asian maritime hub so any measures which the Government might be able to offer would be welcomed including any support which preserves the diversity of industries, including research and development, in this maritime cluster.”

The sharp downturn in the offshore oil and gas sector is having an effect on the Singapore maritime community and those who have invested in it.

The default of offshore services company Swiber Holdings prompted banks in Singapore to warn investors about risks of further loan and bond defaults by other offshore service companies with high debts and poor cash flows, due to the prolonged downturn and resultant loss of earnings, as further bonds mature during the next two years. Some offshore support companies have sought to restructure their finances and exposure as well as redoubling their efforts to reduce costs.

Ratings agency Moody’s and some analysts suggested that some Singapore banks had not made sufficient provision against likely losses in the oil and gas sector, though the banks insist that they can manage those risks.

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