More government aid needed for troubled oil-linked firms: analyst

The maximum loan quantum only represents 4% of small-mid-cap firms' debts.

Enhanced government support announced for Singapore-based offshore marine companies helps, but the maximum loan quantum of $15m per borrower group for working capital needs may not fit all sizes, said DBS Vickers Securities.

The Singapore government (Ministry of Trade and Industry) has announced enhanced support measures for the marine and offshore engineering (M&OE) companies based in Singapore, in view of the intensifying financial challenges for the sector amidst a prolonged industry downturn.

The support is in the form of new incremental loan facilities from SPRING Singapore and IE Singapore available to Singapore-based M&OE industry players. This comprises i) the Bridging Loan facilities, which provides up to $15m in borrowings to M&OE companies/groups for working capital purposes, and ii) the Internationalisation Finance Scheme (IFS), which was already in place, but its maximum quantum has been increased from $30m to $70m. The IFS can only be utilised though for purchasing fixed assets, project financing, and M&A financing. The government will take on 70% of the risk-share for both the Bridging Loan and the expanded IFS programme.

According to the IE Singapore news release, the Bridging Loan and IFS measures could catalyse about $1.6bn of loans over one year.

DBS Vickers Securities comments that the Bridging Loan provides much needed working capital buffer, though facility size could have been larger.

As the Bridging Loan programme was briefly introduced in 2008/2009 during the Global Financial Crisis, this represents a re-introduction of sorts, with broadly similar terms as the previous version, albeit a more targeted one.

The research house notes that this is precisely the kind of facility that beleaguered O&G players require (i.e. for working capital purposes). However, it notes that the loan quantum available – of $5m per company (or $15m per borrower group) – is not exactly huge for small-mid cap names under its coverage, and it believes this is more useful in ensuring that the industry value chain keeps moving, and small suppliers and contractors do not go bust.

"Just for comparison sake, the $15m per borrower group would represent only around 4% of all the SGX-listed small-mid-cap O&G players’ short-term debts by our estimates," it said.

The research house also notes that while IFS facility is larger, it meant more for industry consolidation rather than survival.

"While the IFS facility’s size has been increased substantially from $30m previously to $70m, we think the required use of funds – for the purchase of fixed assets, project financing, and M&A financing – is a limitation, as most small-mid-cap O&G service players/shipyards are not planning on expansion amidst the protracted downturn, and day-to-day operations are unlikely to qualify for ‘project financing’ (based on our channel checks with SPRING Singapore)," it said.

DBS Vickers Securities however notes that as balance sheet stress situations increasingly present themselves, the IFS facility could help to spark more M&A activity, which it thinks could be a theme for 2017.

"It seems the government believes that industry consolidation is inevitable as companies restructure and adapt to the challenging environment," it said.