Although Singapore is a smaller player in oil and gas production, companies based in the country provide services to support regional subsea exploration and production activities. However, the extended down cycle for oil prices since 2015 has forced rig builders to cut jobs, while smaller oil providers face bankruptcy.
To cope, Singaporean oil services groups have sought to raise money through rights issuances, divesting assets, and restructuring bank loans. However, big players, such as Keppel Corporation, are still struggling. Keppel, which specializes in marine, property and infrastructure businesses, cut 16% of its staff in the first half of the year as net profit fell by 45%. Keppel’s rival, Sembcorp Marine, reported a 70% drop in profits during the first half of their fiscal year.
More Singaporean companies tied to the oil and gas industry are facing difficulty repaying their debt as demand for their services falls. While Keppel and Sembcorp are backed by Temasek, Singapore’s state oil investment company, smaller oil and gas companies have attracted warnings from auditors about their ability to continue business.
Analysts say these warnings stem from the risks of lending to struggling oil companies faced by the country’s three big banks, DBS, OCBC, and UOB, which are the main lenders to the country’s offshore oil and gas services sector.
Concerns have spread to the other banks after DBS announced that they expect to recover only about half of the $700 million (Singapore dollars) they had lent to Swiber, a Singapore-listed marine engineering company. Only about $300 million (Singapore dollars) of DBS’s loan is secured against collateral.
At UOB’s results briefing, analysts cited difficulties in the oil and gas services sector due to the rise in non-performing assets, and identified the sector as a key concern. However, the bank did announce that their exposure to Swiber was manageable.
Wee Siang Ng, a Singapore-based analyst at Fitch Ratings, believes that going forward, one can expect “sporadic default case[s],” particularly in the event that oil prices remain depressed for a sustained period.