Singapore Inc is facing mounting concerns as the city-state’s long-successful oil and gas sector turns sour with the oil price slump.
Oil and gas services have been a lucrative niche for the country. It is the world’s biggest maker of jack-up rigs, which are used to drill for oil in shallow ocean waters.
But the plunging price of , currently hovering around $40 a barrel, has turned this strength into a source of as rig builders have been forced to slash jobs while smaller oil services providers face bankruptcy.
The latest company to get into difficulty is Swiber, a Singapore-listed marine engineering company that has been placed under a court-supervised rescue plan.
Analysts say Swiber’s troubles underline the particular risks faced by the country’s three big banks — , and which are the main lenders to the country’s offshore oil and gas services sector.
Swiber, valued at just over S$50m (US$37m) before trading was suspended, defaulted on a coupon payment last week, hit by a slowdown in its business including the delay of a $710m oilfield project in west Africa.
A total of S$1.2bn in bonds issued by Singapore is set to mature by the end of 2017, according to data compiled by OCBC Bank, and there are now worries there could be more defaults.
“I would expect sporadic default cases going forward. I would expect widespread default in the event that oil prices remain depressed on a sustained basis,” said Wee Siang Ng, a Singapore-based analyst at Fitch Ratings.
Big players such as rig builder are also struggling. Keppel cut 16 per cent of its staff in the first half of the year as net profit fell 45 per cent. Rival reported a 70 per cent drop in first-half profit.
However, Keppel is cushioned by the strong performance of its property development and property fund management arm. Both rig builders also are backed by Temasek, Singapore’s state investment company.
But a handful of smaller oil and gas companies have attracted warnings from auditors about their ability to continue as going concerns, financial filings show.
“Several offshore and marine companies were making investments for future growth during 2014 and were caught when energy prices took a steep dive in [the fourth quarter of] 2014,” said Nick Wong, credit analyst at OCBC Bank, said.
The oil price slide has also deterred upstream activity by oil majors, denting the profitability of services providers, Mr Wong added.
To cope, Singapore oil services groups have sought to raise money through rights issues, divesting assets, and by restructuring bank loans.
Concerns have spread to the banks after DBS said it only expected to recover about half of the S$700m it has lent to Swiber. Only about S$300m of DBS’s lending to Swiber is secured against collateral such as vessels.
However, DBS said Swiber “had an order book of more than S$1bn” as of the end of June and noted that the company had no overdue payments with the bank.
At UOB’s results briefing it cited difficulties in the oil and gas services sector for a rise in non-performing assets and identified the sector as a “key concern”. But it said its exposure to Swiber was manageable. UOB’s outstanding loans to the oil and gas industry stood at S$9.3bn at the end of June, or 4 per cent of the total outstanding loan book.
DBS, which is due to report second-quarter results on August 8, had loans of S$17bn to the oil and gas sector in the first quarter, equivalent to 6 per cent of its loan book.
