Singapore's offshore industry recovering, but no return to glory days

Marco Polo Marine

30/07/2018 04:04

By Aradhana Aravindan and Fathin Ungku
    SINGAPORE, July 30 (Reuters) - A big drag on Singapore's
growth in recent years, the embattled offshore and marine
industry, has broken a three-year losing streak. Yet industry
executives aren't betting on a return to the glory days anytime
soon.
    The industry, along with a top-class finance sector, has
been a key pillar of Singapore's economic transformation into a
first world economy since independence from British colonial
rule in 1965 and a source of national pride. But a 2014 collapse
in oil prices has resulted in thousands jobs lost, several
defaults and billions of dollars in debt restructurings.
    Now, as oil prices  LCOc1  pick up, the industry is coming
back to life. A 28.3 percent year-on-year jump in output from
the marine and offshore engineering sector in June was the
biggest since March 2014. urn:newsml:reuters.com:*:nS7N1SV038
    However, Singapore's battered companies are bracing for a
long period of convalescence. The specialist divers and
engineers servicing rigs in Southeast Asian waters have moved on
and may be unwilling to return for lower wages. 
    Bankers, having been bitten by the sector, are reluctant to
lend. And oil prices have recovered almost too quickly for oil 
exploration and production clients to have the confidence to
turn enquiries into actual orders. 
    "While we may be at the bottom of the cycle, we view the
recovery as more gradual with risk of most new order wins being
low or zero-margin jobs," said Ajay Mirchandani, head of
research for ASEAN at JP Morgan. "We won't be anywhere near the
glory days for the foreseeable future."
    Take Kim Heng Offshore and Marine Holdings  KIMH.SI , a firm
which provides rig services and owns shipyards. During the
downturn, it slashed its workforce by a third, cut salaries by
10-20 percent, and sold around seven barges.
    As oil prices recovered, it has gone into distressed sales
and bought several vessels used for towing and anchoring rigs,
for as little as $3.2 million apiece, about 10 percent of their
usual price. It plans to own 15 of them, hoping for help from
private equity investors.
    But this is investment for the future and ploughing more
funds into the sector is reliant on how oil prices fare. Oil
prices need to sustain their recovery into next year to boost
client sentiment, CEO Thomas Tan told Reuters.
    "Eventually the increase in oil prices will give (companies)
enough money to reinvest in the future, which may happen
probably next year," he said. "They are slowly increasing their
investment but not in a big way. Demand is still pretty slow."
    Growth in Singapore's trade-reliant economy had slowed in
the wake of the oil price crash. It has since recovered as
output in sectors like electronics surged, though economists say
the city-state faces growing headwinds from a bitter U.S.-China
trade dispute. 
        
    DWINDLING CONTRIBUTION
    The offshore and marine engineering industry's direct output
contribution has more than halved since 2014 to about 1 percent
of the city-state's economy, but its significance extends beyond
manufacturing: real estate has been pressured as companies
needed less office space and fewer workers needed housing.
Well-paid engineers have stopped browsing the shopping malls.
    And executives doubt they can bring them all back.
    "During this whole crisis ... we lost quite a lot of this
talent to other industries, so to build it up again will take
some time," said Sean Lee, chief executive of Marco Polo Marine
 MAPM.SI , which owns offshore support vessels, tugs and barges
and recently finished restructuring its debt after getting
"almost zero" enquiries in the previous two years.
    "It is going to be difficult to attract new people or even
bring back those who have left," he said.
    Even sector heavyweights Keppel Corp  KPLM.SI  and Sembcorp
Marine  SCMN.SI  said recently they were not hopeful of any
quick recovery.
    "While overall sentiment and offshore capex spend have begun
to improve, it will take some time before sustained new orders
occur," Wong Weng Sun, Sembcorp Marine's chief executive, said
at its results briefing this month.  

 (Editing by Shri Navaratnam)
 ((aradhana.aravindan@thomsonreuters.com; +65 6403 5659; Reuters
Messaging: aradhana.aravindan.thomsonreuters.com@reuters.net))