Wednesday, August 16, 2017 - 05:50

Singapore

SINGAPORE banks' exposure to the oil and gas sector is back in the spotlight after the surprise suspension of Ezion Holdings and heavy quarterly losses - totalling almost S$1 billion - suffered by Nam Cheong and Marco Polo Marine.

In the stock market on Tuesday, DBS, OCBC and United Overseas Bank fell by as much as 1.5 per cent and dragged the benchmark ST Index into the red.

When asked about their exposure to the three beleaguered firms, DBS said the bank does not comment on specific names while UOB declined to comment.

 

OCBC spokeswoman Koh Ching Ching said that while the bank is not able to comment on specific customer loans, it has since the third quarter of 2015 undertaken steps to pro-actively classify several accounts in the oil and gas sector for close monitoring and assisted customers to reschedule and restructure their loans.

" Although the sector remains under stress, sufficient provisions have been set aside. The overall quality of our loan portfolio remains stable - in the second quarter of 2017, we disclosed an overall NPL ratio of 1.3 per cent, unchanged from the preceding two quarters," said Ms Koh.

On Monday, offshore and marine group Ezion Holdings said it has suspended trading and is talking to stakeholders to discuss financing options after it stayed in the red for the third consecutive quarter, with a Q2 loss of US$2.57 million.

The latest development for Ezion took many by surprise as it had been seen as a potential survivor of the oil and gas downturn.

Ezion also has the largest borrowings of the three, almost US$1.5 billion.

Nam Cheong, the Malaysian shipping firm, announced on Monday it had plunged into the red with a net loss of RM2.02 billion (S$640 million) for its second quarter ended June 30, against a profit of RM3.04 million a year ago, mainly due to assets impairment and write-downs of RM2 billion.

Nam Cheong, which called for a suspension on July 20, has total borrowings of RM1.8 billion and said it has also taken steps to review its options to restructure its businesses, operations and balance sheet.

Also on Monday, Marco Polo Marine reported a net loss of S$304.23 million for its Q3 ended June 30, deepening from its S$6.41 million loss a year ago. The ailing company has total borrowings of S$248 million and has suspended trading of its shares since May 2017 as it embarked on a debt refinancing and restructuring plan.

During their Q2 reporting season a few weeks earlier, the three banks had increased provisions for their oil and gas and shipping exposure their non-performing loans also rose mainly due to the struggling sector.

At DBS' s results briefing, chief executive Piyush Gupta gave a muted assessment of its oil and gas portfolio, and warned of more provisions to come.

" While contracts are picking up, the oil-and-gas service players don' t have any pricing power," Mr Gupta said. The rates today are barely able to cover operating expenses for such players, he added.

Even as there are efforts by support service players to repurpose vessels, such work not only requires some capital expenditure, but also creates repurposed vessels that again do not command higher rates.

Mr Gupta warned of bigger specific allowances than expected, given the continued stress in the O& G segment.

In the first quarter of 2017, DBS had guided for specific provisions at S$1.1 billion (excluding Swiber Holdings) for the full year, and Mr Gupta is now warning that that estimate may be busted.

Similarly, OCBC chief executive officer Samuel Tsien said the industry was not in the midst of a recovery yet.

" We need the oil-and-gas sector to actually improve before the whole situation can be classified as recovering and I don' t think we are at this stage yet," said Mr Tsien, referring to oil prices which he said need to be at a sustainable higher level than at current levels.

Oil is trading around US$50 per barrel. Singapore banks have said oil prices have to head to as much as US$70 per barrel before offshore support vessel operators can make a decent margin.

In the stock market, OCBC fell 1.5 per cent to S$11.21 DBS, 1.3 per cent to S$20.78 and UOB, 0.6 per cent to S$23.96.

 

Offshore services provider Marco Polo Marine has provided close to SGD300m ($220m) in impairments and allowances during its third quarter of financial year 2017 on the back of a protracted downturn in the oil and gas sector.

Singapore&rsquo s Marco Polo Marine, which is in the midst of a refinancing and debt restructuring exercise, consequently saw its third quarter results plunged to a loss of SGD304.23m compared to the smaller loss of SGD6.41m in the same period of last year.

&ldquo With the prolonged slump in the O& G sector, being conservative the group decided to make impairment adjustments of SGD196.5m on its OSV assets to reflect current distressed market value,&rdquo Marco Polo Marine said.

&ldquo Impairment adjustments on 10 units of OSVs booked under property, plant and equipment accounted for SGD153.3m, two units of OSVs completed but not delivered and one unit of incomplete OSV, booked under inventories added SGD43.3m.&rdquo

The company also made impairment on the carrying value of investment in JV companies of SGD56.7m, trade receivables plus forfeited deposits of SGD11m, as well as impairment on recoverable amount for the first 10% deposit paid to a terminated rig project of SGD35.1m, bringing total impairment and allowances to SGD299.3m.

The terminated rig project is the unresolved dispute between Marco Polo Marine and compatriot Sembmarine that  arose in November 2015. Marco Polo Marine unilaterally terminated the rig order worth $214.3m at Sembmarine&rsquo s PPL Shipyard and demanded a refund from PPL of the initial 10% downpayment.

PPL Shipyard, on the other hand, is seeking payment for a second 10% payment plus interest from Marco Polo Marine.

In July this year, the Singapore High Court granted applications for a scheme of moratorium made by Marco Polo Marine and its subsidiary Marco Polo Shipyard until 31 August, so as to faciliate the companies to finalise a scheme of arrangement with their creditors.

&ldquo The company is in advance negotiations with potential investors to raise fresh funding as part of the group&rsquo s proposed financing and debt restructuring,&rdquo Marco Polo Marine said.

&ldquo The long term prospects of the group, in particular, its ability to continue its business and operations in the next 12 months, are dependent on the ability of the group to achieve a successful refinancing and debt restructuring,&rdquo the company said.