Clients at Singapore's private banks are likely to feel much pain from credit woes in the oil and gas sector after snapping up high-yield bonds in recent years, bankers say - a risk highlighted by the failure of oilfield services firm Swiber Holdings.
Oil and gas services firms have aggressively tapped the local bond market, particularly in 2013 and 2014, but a subsequent collapse in oil prices, tumbling charter rates and delays to projects has sent the industry reeling. In addition to Swiber's announcement on Thursday that it had filed for liquidation facing hundreds of millions in debt, smaller firm, Technics Oil & Gas Ltd was placed under judicial management this month.
A number of firms have also sought bondholder consent to relax covenants such as those relating to waivers for potential non-compliance, banking sources said, adding that investors have had a hard time reducing their exposure. "It has been sort of a double whammy for private wealth investors," Todd Schubert, managing director, fixed income research at Bank of Singapore, OCBC's private banking arm.
"In the first place, the financial position of some of the companies deteriorated and secondly if they wanted to reduce their positions or get out, there isn't the liquidity there in the market to give them bids in a lot of these names." Energy and offshore marine companies in Singapore have bonds totalling nearly S$1.2 billion ($880 million) due to mature over the next year and a half, according to IFR, a Thomson Reuters publication. Some of the firms seeking to relax covenants have been clearly struggling to service their debt, said a local debt capital markets' banker, declining to be identified as he was not authorised to speak to the media.
"These guys had cash but not enough cash generation, their ICR (interest rate cover) was under stress," he said. Private banks accounted for almost half of investments into Singapore dollar corporate debt in 2014, a central bank report said last year. During 2014, energy-related bond issuance accounted for 17 percent of total issuance, according research from Bank of Singapore, although it has declined sharply since then.
Debt at individual firms can be quite sizeable. Swiber alone has five bonds with a combined value of S$551 million ($408 million) including debt of 450 million yuan ($68 million) and S$150 million in Islamic bonds, that mature in 2016, 2017 and 2018. Singapore's biggest lender, DBS Group Holdings on Thursday disclosed it had S$700 million exposure to Swiber while the city-state's two other top banks have flagged concerns about loans to the sector.
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