S’pore oil services firms call for slack to avoid bond defaults

SINGAPORE — Borrowers in Singapore, so far spared the wave of defaults in the global oil services industry, are starting to ask their creditors to cut them some slack.

Three companies, including Dyna-Mac Holdings, partly owned by the world’s largest rig builder, Keppel Corp, this month have called on bond-holders to alter certain debt limits or profit targets as contract delays wreck the firms’ earnings. The issuers are among 28 oil services firms listed in Singapore with more than S$1.8 billion of notes maturing next year.

“If the oil markets remain depressed beyond 2016, you are going to see some problems. Some of the oil and gas players will probably have to restructure their bonds,” said Mr Joel Ng, an analyst at KGI Fraser Securities.

The borrowing that helped build Singapore’s biggest export industry is looking overstretched after the price of benchmark Brent crude oil slumped from its peak of almost US$115 (S$163) a barrel in June last year to just above US$40 a barrel, while the island-state’s economy grew only 0.1 per cent in the third quarter from the previous three months.

“More delivery deferrals and provisioning by yards suggest clients’ unwillingness or inability to pay due to cash flow issues,” Maybank Kim Eng analysts wrote in a research report published last Friday. “Credit problems have started to surface.”

Money is certainly tighter for the 28 listed oil services firms. The median ratio of their operational earnings to interest expense, a measure of a company’s ability to pay its debts, was 5.4 times in their latest filings, a steep drop from 12.5 times at the end of fiscal 2014, according to data compiled by Bloomberg.

Oil services provider Dyna-Mac’s measure plunged to minus 4.4 times in the latest quarter from 27 times at the end of 2014. The company is now asking holders of its bonds due in 2017 to, among other things, change a clause that limits its interest coverage ratio to at least three times.

Pacific Radiance, an operator of vessels used in energy exploration, is also seeking to tweak a rule on its 2018 bonds that requires interest coverage above three times, compared with 4.1 times as of Sept 30. The company’s debt-to-equity ratio, a key measure of leverage, jumped to 98.4 per cent at the end of June from 75.7 per cent at the end of December.

“It’s a prudent approach because we wouldn’t know how long this soft market condition will last. While we do not expect to breach the covenant, leaving it to hope is not a strategy. We have already cut costs and realigned our ops to be as competitive as possible. We have prepared ourselves for the long march ahead,” said group finance director Loo Choo Leong.

On average, the debt-to-equity ratio of Singapore-listed oil firms rose to 73.1 per cent in latest filings from 68 per cent at the end of the last fiscal year, while their mean cash holding fell to US$165 million from US$290 million.

Offshore marine services provider Ezra Holdings, which successfully raised S$200 million from a rights offering in July, is asking noteholders to change certain requirements after it agreed a US$1.25 billion subsea services joint venture with Japan’s Chiyoda Corp.

The venture “will be better positioned to capitalise on market opportunities as well as manage risks arising from fluctuating market conditions”, an Ezra spokesperson said yesterday. BLOOMBERG