The offshore and marine industry was once a high-performing sector in Singapore’s stock market, attracting close to 20 company listings on the Singapore Exchange. Today, it is a very different story. The once-budding offshore equity market is unlikely to relive the past glory of landing bountiful bank loans and seeing bonds swiftly snapped up.
In a booming market, the issuance of bonds is a quick way for companies to raise cash. However, this has also translated into a problem that led to the downfall of many Singapore-listed offshore companies. In a lacklustre market of a fundamental demand-supply imbalance, companies fall into a cash-strapped situation and become unable to meet bond payment due dates. And once the bondholders refuse to grant extensions, the companies will have no choice but to file for debt restructuring.
This problem is further compounded in Singapore where these bondholders are typically common investors who have little understanding of the bond market.
M3 Marine group chief executive Mike Meade commented “If you look at the bond market in the west, the bonds are bought by institutional investors who understand economics. What has happened in Singapore is that the bonds were sold to the common investors and these investors are putting in their pensions and even leveraging off with bank loans. And all those bonds have failed.”
Mr Meade added that when the offshore market recovers, those three to four banks in Singapore that traditionally support the sector will not return.
DBS chief executive Piyush Gupta has publicly said more than once that the bank will not be interested in taking more oil and gas asset provisions into its book.
The biggest loser in the long term will be Singapore’s offshore equity market which will shrink as banks realise they need to steer clear of offshore companies now deemed as mom and pop shops and sophisticated OSVs seen as mere boats.
The OSV market itself is in a dire state of a severe oversupply of tonnage. There are an estimated 1,700 vessels in cold stack and another 400-600 newbuilds waiting to be delivered from Chinese shipyards. The global fleet in operation today is approximately 5,500.
To make matters worse, owners do not have much desire to scrap the excess tonnage due to the low steel content of the vessels. This makes it difficult to deflate the supply glut during a time when demand is low.
“I feel sorry for companies that were well-structured going into the downturn – Swire Pacific Offshore, POSH – they had clean balance sheets but now they are burdened because everybody overbuilt,” Mr Meade observed.
Ezra Holdings filed for bankruptcy in March this year, followed by the court approval of Swissco’s bankruptcy filing in April. Companies such as ASL Marine, EMAS Offshore, Ezion, KS Energy, Marco Polo Marine, Pacific Radiance and Triyards are burdened by debt restructurings and are heavily reliant on support from banks and noteholders.
Singapore-listed but Malaysia-owned Nam Cheong, builder of OSVs, is pushing for a restructuring under a scheme of arrangement pending approval from its creditors.
The immediate outlook for the listed OSV companies remains challenging, to say the least. What, then, is the good news for Singapore’s offshore equity market?
Ahem, sorry what was the question again?