Singapore oil service firms tap alternatives to scarce bank funding

Pacific Radiance

20/10/2015 09:55

* Banks shy away from lending to oil service firms 
    * Sale and leaseback more costly, but provides needed funds 
    * Alternative financiers wary of uncertain market prospects 
 
    By Rujun Shen 
    SINGAPORE, Oct 20 (Reuters) - Offshore services firms in the 
Asian oil hub of Singapore are turning to higher-cost 
alternative funding avenues to offset a shortfall in bank-led 
financing, straining their liquidity that is already squeezed by 
weak oil prices, industry executives say. 
    The companies, which own offshore support vessels (OSVs) 
performing tasks such as towing rigs and constructing offshore 
oil fields, are seeking funds from the sale and leaseback of 
assets and from equity partners, among other ways, to build up 
cash balances or even stay afloat. 
    Charter rates and utilisation of the global OSV fleet have 
fallen about 20 percent this year, leaving ship owners, 
especially those that borrowed heavily to fuel fleet expansion, 
short of cash at a time when banks are cautious about lending to 
the sector because of its uncertain prospects. 
    Ezra Holdings  EZRA.SI , for instance, is seeking to sell 
and lease back its flagship construction vessel, Lewek 
Constellation, even after taking steps to reduce leverage this 
year, according to the company. 
    "Pretty much any company in the offshore space is looking 
for where to raise capital, whether they need it, or whether 
they are just raising liquidity to make sure they have cash 
coming to the downturn," said Tobias Backer, head of shipping 
and offshore at ICON Investments, an alternative finance 
provider. 
    Alternative financing could be fulfilling up to half of the 
capital needs of oil service firms now, versus just 5-10 percent 
when banks were actively lending a couple of years ago, Backer 
said. ICON counts Ezra, Pacific Radiance  PACI.SI  and Swiber 
Holdings  SWBR.SI  among its clients. 
    Leverage at the oil services companies has risen. The median 
debt to equity ratio of 18 Singapore-listed OSV owners was up by 
about a third from a year earlier at 1.08 at the end of the 
second quarter, Thomson Reuters data showed.  
    Sale and leaseback deals give ship owners the desired 
leverage, albeit at a cost. The cost of funding through a sale 
and leaseback would be about three percentage points higher than 
a senior bank loan, bankers said.  
    "It's more costly, but the fact that you can get 100 percent 
cash back makes it attractive," said Yeo Zhi Bin, analyst at 
brokerage CIMB. 
    The murky oil market outlook, though, has made some 
financiers wary of risks on such deals. 
    "If the vessel doesn't offer employment, the operator has 
not much of track record, it is going to be hard to attract 
people to provide medium or long term financing," said Gregg 
Johnston, partner at law firm Stephenson Harwood in Singapore. 
 
 (Reporting by Rujun Shen; Additional reporting by Tripti Kalro 
in BENGALURU; Editing by Muralikumar Anantharaman) 
 ((rujun.shen@thomsonreuters.com; +65-6403-5666; Reuters 
Messaging: rujun.shen.thomsonreuters.com@reuters.net)) 
 
Keywords: OILSERVICES FINANCING/