SOURCE: LLOYD’S LIST
• Friday 17 March 2017, 04:15
• by Abdul Hadhi
Earlier assumption that impairments are largely done becomes unhinged as oil stockpiles soar
SINGAPORE-LISTED companies operating in the offshore and marine sector took impairments totalling $1.7bn in 2016 and more bankruptcies are possible as balance sheets get stretched further in 2017.
Soaring oil inventories have cast into question the assumption that oil prices will remain stable above $40-$50 a barrel, UOB Kay Hian analysts Foo Zhiwei and Andrew Chow said in a report. They added that the oil price assumption had been behind earlier expectations that impairments are largely done.
“With 2017 likely to be the third consecutive year of the downturn, already stretched balance sheets will be stretched further, possibly resulting in 2017 as the year of bankruptcies,” Mr Foo and Mr Chow said.
“Another wave of distressed assets will flood the market, impacting asset values and possibly mandating further impairments,” they warned.
They added that the outlook remained uncertain for small and mid-sized operators at this juncture while for the big companies, another round of impairments could be expected unless orders returned in a sizeable way that provided work for remaining yard capacity.
Impairments by small and mid-sized operators almost doubled year on year in 2016 to $999m from $566m, mainly from offshore support vessels owners as they reflected a lower current value of assets and doubtful receivables. The impairments were led by the Ezra group of companies, EMAS and PACC Offshore.
The big shipyards, however, saw impairments down 59% at $691m during the period due to Keppel Corp’s mothballing of yards and Yangzijiang’s impairments on its fleet of owned vessels.
Exposure to the beleaguered sector, which dragged offshore support services firms such as Swiber and Swissco into judicial management, forced Singapore’s banks to set aside hefty provisions in 2016.
DBS saw non-performing loans doubling for the full year and the fourth quarter of 2016, to S$1.43bn ($1.02bn) and S$462m respectively, largely due to “stresses in the oil and gas support services sector”. According to a CIMB research report, new non-performing assets in 2016 included S$721m for Swiber.
The sector’s troubles in Asia are also affecting the industry in the Middle East. Synergy Offshore chief executive Fazel Fazelbhoy estimated that around 100 vessels had moved from Southeast Asia to bring the number of offshore support vessels in the Middle East to about 450