The oil crisis has finally claimed its first high profile victim in Singapore market. The news doesn’t come as a surprise for most but nonetheless, bondholders and shareholders are bound to take a severe hit.

The good news is, since the corporate bond has a minimum quantity of S$250,000, most retail bond investors shouldn’t be too badly affected apart from potentially vested high-yield bond unit trust.

For the shareholders, you probably will not so lucky. As of March 2016, there are 10,250 based on the annual report.

Swiber has $1.4 billion of total liabilities. With only $2 billion dollars of total assets and a bulk of it in receivables and PPE, we shouldn’t expect much, if any to be left over for shareholders. Even the bond holders will likely take a severe loss on their principal.  

 

As I always stress, it is not only about return on capital but more importantly, the return of capital. The company has not been performing well for a long period to begin with.  

Just some time back, they issued their corporate bond at a delicious 7.1% yield in 2013, except even then, it has not been generating positive cash flow from its business.

The situation simply got worse in 2015 as oil prices continue to tank, bleeding over S$300 million in its operating business. The warning was sounded in early January 2015 on Motley Fools here. As a matter of interest, here's the list of Principal Bankers (listed in Swiber's 2015 Annual Report) for reference:

Investors and bondholders will be adversely affected by the event, especially bondholders who took a leverage from the bank for higher yield. Hopefully the liquidators will be able to sell off the assets at near book value.

Other oil related companies would inevitably be affected by the unfortunate news. Watch out for O & G companies, especially small caps with high gearing.

[Update: As of 29 Jul 2016 (Friday) night 22:45, based on SGX website, in a unexpected twist, Swiber has made another announcement that it has instead opted for judicial management, the appointed Provisional Liquidators, Mr Cameron Duncan and Ms Muk Siew Peng have had discussions with Swiber's major creditors and it is said that they are supportive of the company to be placed under JM.]

[Update: Chart Reference (2nd Aug 2016):

At its peak in the month of Oct 2007, the share price of Swiber hit a high of over SGD6.00 [and a total market cap of over SGD1.5 billion (source: Motley Fool SG)]. Post sub-prime period, it hover mainly between about 0.60 to 2.00, only to correct fairly sharply from May 2014, about the same time when oil starts to fall precipitously (see below).

Comparing the two charts, it is interesting to note that, while the Brent Oil Prices recovered from around $40/= (from Jan 2009) to about $120/= (post Jan 2011) plus levels, which was within say, 15% of its highest price around early 2008, Swiber's share price, on the other hand, never get to see its formal glory of $5-6 dollars level.


"In the business world, the rearview mirror is always clearer than the windshield."

~ Warren Buffet


On hindsight, perhaps a warning sign that was inadvertently missed by many.

Useful Links:

Swiber's move to wind up sends shock waves through market. ~ Business Times

More consolidation expected in offshore, marine sector after Swiber developments: Observers ~ Channel News Asia