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Showing posts with label Oil prices. Show all posts
Showing posts with label Oil prices. Show all posts

Saturday 17 September 2016

Challenging 2017 seen for Singapore's shipping services


It has been a rough week for Singapore’s shipping services industry and the going could get even tougher next year with record debt falling due.

Rickmers Maritime, which operates container ships, said it is asking creditors for leniency on about US$253mil of debt. Marco Polo Marine Ltd, a provider of barges and tugs for coal, steel scrap and iron ores, said Tuesday it’s asking bondholders for approval to delay paying S$50mil (US$36.5mil) of securities due next month.

The city-state’s shipping and other logistics firms face a record US$1.8bil in note repayments in 2017, data compiled by Bloomberg show.

Singapore, a former British colony, relied on its port to help transform itself into one of Asia’s so-called tiger economies. Container throughput shrank 8.7% in 2015 as global trade slowed, while slumping crude prices have hurt firms that service the energy industry.

Swiber Holdings Ltd, which operates construction vessels to support the oil industry, defaulted in August, while Ezra Holdings Ltd said last week it held talks on potential fundraising.

Sembcorp Marine Ltd and Keppel Corp have reported slumping profits.

“It doesn’t look like the worst is over for the maritime industry,” said Joel Ng, an analyst at KGI Fraser Securities in Singapore. “It’s tough for the creditors.

The banks need to continue to provide liquidity given the industry’s cashflows are tight.”

Singapore’s bad loans rose to 2.25% of the total in 2015, the highest since 2009. Oil services firms are also facing mounting difficulties as crude prices have dropped to about half the prices in 2013, forcing energy giants to put investment plans on hold.

“The shipping and oil and gas space has really been a minefield in the bond market,” said Terence Lin, an assistant director of bonds and portfolio management at fund researcher iFast Corp in Singapore.

“One of the positives from this is that there’ll be increased scrutiny on very levered companies, and a push for management to take corrective plans or pre-empt liquidation outcomes.”


Rickmers Maritime won’t be able to repay US$179.7mil of senior debt due in March 2017 and the interest and principal on S$100mil of notes due in May 2017, it said in a filing yesterday.

It’s asking investors to exchange their debt with S$28mil of new perpetual securities to avoid potential liquidation or judicial management that it says would be “likely to result in zero recovery for noteholders.”

Marco Polo Marine told some noteholders of its debt-delay plan at a meeting Tuesday, and those present “appeared generally supportive,” it said in an exchange filing.

It will hold another meeting on Sept 16 on the debt extension proposal, which it didn’t disclose.

“The boards and management teams of the offshore and marine bond issuers still seem to be in denial on the need to do proper balance sheet restructuring,” said Kurt Metzger, a Singapore-based restructuring consultant at GEM Advisory.

“Bondholders are facing significantly higher risk and should be looking for significantly higher returns and improved structures.” – Bloomberg

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Tuesday 2 August 2016

Slippery Oil prices plunging create bad-loan pain for S'pore banks, Swiber to restructure


DBS, OCBC and UOB exposed to downturn in energy sector


The plunge in oil prices is catching up with Singapore’s three largest banks.

Last week, Swiber Holdings Ltd., a small Singapore company that provides construction services for international oil and gas projects, filed a petition to liquidate its operations, after facing payment demands from creditors at a time when its business was under pressure. DBS Group Holdings Ltd., one of Swiber’s largest lenders, said it only expects to recover about half of the S$700 million ($522 million) it loaned to the firm and its units. Swiber subsequently said it’s dropping the liquidation in favor of a restructure plan.

DBS and Singapore’s two other large banks, Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., are exposed to the downturn in the energy sector as a result of their lending to local companies which provide construction, shipping and maintenance services to the oil and gas industry. Many of those companies are suffering as the plunge in crude prices since 2014 curtailed exploration and other activity by oil and gas producers.

The financial health of the energy-services companies is the “key concern” for UOB over the next one or two years, Chief Executive Officer Wee Ee Cheong said at a media briefing Thursday on the bank’s second-quarter results. The bank’s exposure to Swiber is “manageable,” Wee said, though he noted that the wider difficulties in the oil and gas services industry were a factor behind the 17 percent climb in UOB’s nonperforming assets for the second quarter.

Debt Restructuring

Swiber said it will drop its liquidation application in a statement on Friday. Instead, the company plans to operate under a judicial management, which would allow it to continue operating under court supervision while it attempts to turn its business around. Some of its lenders had sought judicial management to recover more of their loans, according to people familiar with the talks who asked not to be identified because the discussions were private.

“I presume it helps them buy time but it’s uncertain how viable these oil-services companies are if oil prices remain low for an extended period of time,” said Alan Richardson, a Hong Kong-based fund manager at Samsung Asset Management, which owns DBS shares. “The indirect victims of these bankruptcies are the banks who are lending money to them.”

Shares of DBS were little changed at S$15.40 as of 11:02 a.m. local time on Monday, paring this year’s loss to 7.7 percent. OCBC gained 0.8 percent and UOB rose 0.6 percent.

Oil has slipped about 19 percent from its recent peak in early June, ending a recovery that saw prices almost double from a 12-year low in February. Prices are falling again as U.S. producers increased drilling amid a glut of crude and fuel supplies that are at the highest seasonal level in at least two decades.

Moody’s Downgrade

The recent recovery in oil prices from their lows has provided only modest relief, OCBC Chief Executive Officer Samuel Tsien indicated Thursday in a media briefing on the bank’s second-quarter results, which included a 61 percent jump in nonperforming assets.

“We cannot say it’s going to be the bottom yet. We may have two more quarters to go,” Tsien said in response to a question on the rise in delinquent energy sector loans.

Oil and gas-related loans made up 5.3 percent of gross lending by Singapore banks as of December, a higher proportion than at banks in Korea, Thailand and the European Union, according to Moody’s Investors Service. The deteriorating quality of the Singapore banks’ loans to energy firms, as well as weaker regional economies, prompted Moody’s to downgrade its outlook for the three largest lenders on June 30.

UOB and OCBC’s exposures to offshore marine services companies amounted to 13 percent to 18 percent of their common equity Tier 1 capital and loan-loss reserves at the end of June, Moody’s said in a statement Monday.

DBS is due to report its second-quarter results on Aug. 8.

In a sign of how fast the bad-loan problems are worsening, OCBC said new nonperforming assets jumped 91 percent to S$924 million in the second quarter, mainly because of companies linked to the oil and gas support services sector. Newly soured assets at UOB more than doubled to S$802 million, from S$372 million a year ago.

“New nonperforming-loan generation was the highest seen in this NPL cycle so far,” Aakash Rawat, a bank analyst at UBS Group AG in Singapore, said in a report last week. “While this was cushioned somewhat by recoveries and upgrades this quarter, it is debatable whether this will continue to be the case in future.”

The SGX Oil & Gas Index, which tracks 25 locally listed firms, fell to a record low last week after news of Swiber’s problems surfaced on Thursday. Among the biggest decliners on the index was Ezra Holdings Ltd., which provides engineering and construction services to the offshore oil and gas sector. Ezra shares plunged 17 percent last week.

Another indicator of the woes among Singapore oil and gas service firms comes from the bond markets. A total of 10 Singapore-listed firms in the sector, including Swiber, have asked bondholders to loosen their covenants so far this year, versus eight in all of 2015, according to data compiled by Bloomberg. That includes efforts to extend the maturity of debt and loosen covenants requiring companies to maintain certain leverage levels.

Oil-related firms have S$1.4 billion of Singapore-dollar securities maturing through 2018, with S$325 million due by the end of this year, according to Bloomberg-compiled data on July 18.

Among the three large Singapore banks, only DBS has disclosed its exposure to Swiber. OCBC isn’t listed among the oil and gas services firm’s main bankers in its 2015 annual report. UOB’s Wee didn’t quantify the bank’s lending to Swiber at the Thursday media briefing. - Bloomberg

Swiber Holdings to restructure its business


Big exposure: People queue up to withdraw money from DBS automated teller machines at a mall in Singapore. DBS Group Holdings Ltd, South-East Asia’s biggest lender, said it has about S700mil (US523mil) in total exposure to Swiber. – Reuters

SINGAPORE: Swiber Holdings Ltd, the Singapore-based offshore oil and gas services group, said it was dropping liquidation plans and intends to restructure its business following talks with the company's major financial creditor.

Swiber plans to operate under so-called judicial management, according to a statement to the Singapore exchange last Friday. The arrangement would allow the company to continue operating under court supervision while attempting to turn around the business.

Some of its lenders had sought judicial management to recover more of their loans, according to people familiar with the talks who asked not to be identified because the discussions were private.

Swiber filed a petition last Wednesday to wind up and liquidate itself after facing US$25.9mil of demands from creditors.

The company had US$1.43bil in liabilities and US$1.99bil in assets at the end of March, according to its financial statements.

News of Swiber's liquidation plans dragged down the SGX Oil & Gas Index to a new low. Local companies that rely on contracts within the offshore oil and gas market are reeling from a collapse in oil prices.

Last year, a measure of the country's bad-loan ratio reached the highest level since 2009, according to the Monetary Authority of Singapore.

The Singapore bourse said last Thursday it will be undertaking a “thorough investigation” into developments at Swiber after the company made key disclosures only after queries from the regulator.

Swiber on July 11 said it failed to get a US$200mil equity injection from AMTC Ltd, which had agreed to subscribe to preference shares.

DBS Group Holdings Ltd, South-East Asia's biggest lender, said last Thursday it has about S$700mil (US$523mil) in total exposure to Swiber. The bank said it expects to recover half of that amount.

Swiber in June redeemed S$130mil of 5.125% notes and in July redeemed S$75mil of 7% securities.

It has four more Singapore dollar bonds worth a total of S$460mil outstanding, according to data compiled by Bloomberg. – Bloomberg

Slippery slope for oil



Prices unlikely to go up too high for the rest of the year

PETALING JAYA: The continued oil supply glut in the market could mean a sustained low oil price environment, especially in the short to medium term.

The oil supply glut does not seem to be abating, with oil majors preferring to pump and store oil at the moment instead of cutting production.

According to unconfirmed reports, India is mulling over the idea of setting up a strategic petroleum reserve to store oil, similar to the ones that have been established in the United States and China.

As it is now, the ample amount of oil that has been extracted from underground is making its way to even more storage above ground. For instance, very large crude carriers (VLCCs) are increasingly being used for the storage of excess oil, with the tankers lying idle offshore in places such as the coasts of the United Kingdom.

According to the Financial Times, the supertankers have become the temporary centre to store excess oil and the ships are found off the coast of Scotland, where sea conditions are rough.

The International Energy Agency (IEA) in its latest Oil Market Report said that non-Organisation of the Petroleum Exporting Countries (Opec) production remains on course to fall by 0.9 million barrels per day (mmbd) this year, before staging a modest recovery in 2017.

However, the IEA said production from Opec countries has seen steady growth in recent years, with notable increases contributed by Iraq in 2015 and Iran in 2016.

“Our chart shows that, in fact, the oil output from the region rose to a record high in June, with production above 31 mmbd for the third month running. As such, the Middle East market share of global oil supplies rose to 35%, the highest since the late 1970s,” the IEA said in its report.

According to analysts, these concerns may return to haunt oil prices and US$40 could be the new normal for the time being.

Oil prices have staged a strong recovery since their January 2016 lows, gaining some 56% to their seven-month high of US$52.31 last month. The commodity, however, has since lost almost half of its gains.

It had gained on expectations by oil companies and Opec producers that the worst was over after hitting its January 2016 lows. However, Bloomberg reported that oil declined again in its biggest monthly drop in a year, as US producers increased drilling for a fifth week.

The increase in drilling by US producers came amid a glut of crude and fuel supplies that are at the highest seasonal level in at least two decades.

Oil prices have lost some 20% from their June 2016 seven-month highs and were last traded at US$41.63 per barrel.

Analysts said that oil could keep trending lower in the immediate term and that if it breaks the US$40 level, could challenge the next key psychological price mark of US$35.

Interpacific Research’s head of research Pong Teng Siew told StarBiz that he was “quite sure” that oil would be lower as short bets have piled up due to fundamentals.

“Many traders have reversed their long positions and have taken up shorts instead which will drive the oil market lower. My thinking is that the oil market today has got a tendency of being lower than what anyone expects, especially if momentum carries it through,” Pong said.

“I think it will drop below US$40 per barrel, and there is a likelihood that it will keep surprising people at this point in time. It also does not seem that the worst is truly over, and my worry is that the number of US rigs, especially in shale oil, appear to be on the upswing and there is no telling how much more is to come,” he added.

Pong noted that the demand side has picked up since January 2016, but that the take-up pace has been slower than before with the growth in supply.

“Demand was (then) tethered to China’s oil purchases for its strategic petroleum reserves, but that is now at full (capacity) and has seen demand tapering off, resulting in lower oil prices,” he said.

The IEA said that while market balance was seen in mid-summer 2016, the existence of very high oil stocks is a threat to the recent stability of oil prices, noting that in the first quarter of this year, refinery runs growth was 60% higher than refined product demand growth.

“Despite the regular upward revisions to demand that we have seen in recent reports, there are signs that momentum is easing, and although stocks are close to topping out, they are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices,” the IEA said.

Social Economic Research Centre’s executive director and independent economist Lee Heng Guie said that fundamentals today may cause oil prices to continue to remain weak.

Lee said at this point in time, there may be a slight challenge when the next budget is tabled or planned, but that there is comfort that the oil revenue to the Government’s coffers is now at a low level of about 19%.

“The goods and services tax (GST) will make up for the shortfall, but this also depends largely on the health of the local consumer. If household spending remains cautious, then there will be an impact to the GST collections,” he added. - By daniel Khoo The Star/Asian News Network

Related:

Bears crowd Ezra as Swiber’s woes signal oil risks
Singapore’s Ezra to seek fresh capital to weather slump
Refiners start slowing from summer peak


Alam Maritim on Swiber impact

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Wednesday 6 April 2016

Oil Prices: What’s Behind the Drop? Simple Economics

    Some think it will be years before oil returns to $90 or $100 a barrel, a price that was pretty much the norm over the last decade. Credit Michael Stravato for The New York Times

The oil industry, with its history of booms and busts, is in its deepest downturn since the 1990s, if not earlier.

Earnings are down for companies that made record profits in recent years, leading them to decommission more than two-thirds of their rigs and sharply cut investment in exploration and production. Scores of companies have gone bankrupt and an estimated  250,000 oil workers have lost their jobs.

The cause is the plunging price of a barrel of oil, which has fallen more than 70 percent since June 2014.

Prices recovered a few times over the last year, but the cost of a barrel of oil has already sunk this year to levels not seen since 2003 as an oil glut has taken hold.

Also contributing to the glut was Iran’s return to the international oil market after sanctions were lifted against the country under an international agreement with major world powers to restrict its nuclear work that took effect in January.

Executives think it will be years before oil returns to $90 or $100 a barrel, a price that was pretty much the norm over the last decade.

What is the current price of oil?


Brent crude, the main international benchmark, was trading at around  $38 a barrel on Wednesday.

The American benchmark was at around $37 a barrel.

Why has the price of oil been dropping? Why now? 



This a complicated question, but it boils down to the simple economics of supply and demand.

United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.

There are signs, however, that production is falling because of the drop in exploration investments. RBC Capital Markets has calculated projects capable of producing more than a half million barrels a day of oil were cancelled, delayed or shelved by OPEC countries alone last year, and this year promises more of the same.

But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build as new projects come online.

On the demand side, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.

Who benefits from the price drop?


Any motorist can tell you that gasoline prices have dropped. Diesel, heating oil and natural gas prices have also fallen sharply.ny motorist can tell you that gasoline prices have dropped. Diesel, heating oil and natural gas prices have also fallen sharply.

The latest drop in energy prices —  regular gas nationally now averages just above $2 a gallon, roughly down about 40 cents from the same time a year ago — is also disproportionately helping lower-income groups, because fuel costs eat up a larger share of their more limited earnings.

Households that use heating oil to warm their homes are also seeing savings.



Who loses?


For starters, oil-producing countries and states. Venezuela, Nigeria, Ecuador, Brazil and Russia are just a few petrostates that are suffering economic and perhaps even political turbulence.

The impact of Western sanctions caused Iranian production to drop by about one million barrels a day in recent years and blocked Iran from importing the latest Western oil field technology and equipment. With sanctions now being lifted, the Iranian oil industry is expected to open the taps on production soon.
In the United States, there are now virtually no wells that are profitable to drill.

Chevron, Royal Dutch Shell and BP have all announced cuts to their payrolls to save cash, and they are in far better shape than many smaller independent oil and gas producers.

States like Alaska, North Dakota, Texas, Oklahoma and Louisiana are  facing economic challenges.

There has also been an uptick in traffic deaths as low gas prices have translated to increased road travel. And many young Saudis have seen cushy jobs vanish.

What happened to OPEC?


Iran, Venezuela, Ecuador and Algeria have all pressed OPEC, a cartel of oil producers, to cut production to firm up prices. At the same time, Iraq is actually pumping more, and Iran is expected to become a major exporter again.

Major producing countries will meet on April 17 in Qatar, and some analysts think a cut may be possible, especially if oil prices approach $30 a barrel again.

King Salman, who assumed power in Saudi Arabia in January 2015, may find it difficult to persuade other OPEC members to keep steady against the financial strains, even if Iran continues to increase production. The International Monetary Fund estimates that the revenues of Saudi Arabia and its Persian Gulf allies will slip by $300 billion this year.



Is there a conspiracy to bring the price of oil down?


There are a number of conspiracy theories floating around. Even some oil executives are quietly noting that the Saudis want to hurt Russia and Iran, and so does the United States — motivation enough for the two oil-producing nations to force down prices. Dropping oil prices in the 1980s did help bring down the Soviet Union, after all.

But there is no evidence to support the conspiracy theories, and Saudi Arabia and the United States rarely coordinate smoothly. And the Obama administration is hardly in a position to coordinate the drilling of hundreds of oil companies seeking profits and answering to their shareholders.

When are oil prices likely to recover? 


Not anytime soon. Oil production is not declining fast enough in the United States and other countries, though that could begin to change this year. But there are signs that supply and demand — and price — could recover some balance by the end of 2016.

Oil markets have bounced back more than 40 percent since hitting a low of $26.21 a barrel in New York in early February.

Some analysts, however, question how long the recovery can be sustained because the global oil market remains substantially oversupplied. In the United States, domestic stockpiles are at their highest level in more than 80 years, and are still growing.

But over the long term, demand for fuels is recovering in some countries, and that could help crude prices recover in the next year or two. - The New York Times

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Tuesday 3 March 2015

Malaysia's richest four poorer by RM13b

Their net worth hit by challenging economic outlook and slump in oil prices

PETALING JAYA: The country’s top four tycoons in the latest Forbes Malaysia Rich List are “poorer” by a total of US$3.6bil (RM12.9bil) with last year’s challenging economic out­­look shrinking their wealth, ­albeit slightly.

Robert Kuok, 91, who controls a business empire which includes palm oil, shipping, media, hotels and real estate, topped the list for the 10th year in a row with an estimated net worth of US$11.3bil (RM40.5bil) as of February, down US$200mil (RM720mil) from 2013.

In second place was telecommunications tycoon T. Ananda Krishnan whose wealth is valued at US$9.7bil (RM35bil), a drop of US$1.6bil (RM5.7bil) from the previous year, with third spot taken by property mogul and Hong Leong Group chairman Tan Sri Quek Leng Chan with a net worth of US$5.6bil (RM20bil), down US$800mil (RM2.8bil).

Genting Malaysia Bhd chairman and chief executive Tan Sri Lim Kok Thay, who runs casinos in the Bahamas, London, Singapore, Manila and New York besides the home-grown casino in Genting Highlands, claimed fourth place with a net worth of US$5.5bil (RM19.8bil), down US$1bil (RM3.6bil).

“The wealth of some on the list was affected as the local stock market lost steam and the oil price collapse sent the Malaysian ringgit down 10% against the dollar,” according to a statement issued by the business magazine after the release of its latest rankings.

The statement said Ananda’s net worth decreased partly due to a slump in the shares of Bumi Armada Bhd, his offshore oilfield services provider, while Lim’s wealth was affected as China’s economic moderation affected the region’s casino gaming and entertainment sector.

The statement said tycoons with significant investments and ties to the oil sector also suffered a decline in their net worth. SapuraKencana Petroleum Bhd vice-chairman Tan Sri Mokhzani Ma­­­­ha­­thir was knocked out of the billionaire’s list this year as his estimated net worth fell by US$500mil (RM1.8bil) to US$700mil (RM2.5bil).

The main investors in Sapura­Ken­cana – brothers Tan Sri Shahril Shamsuddin and Datuk Shahriman – also saw their fortunes drop to US$860mil (RM3.1bil) from a reported US$1.4bil (RM5bil) the year before. It was not all bad news for some Malaysian tycoons as a weaker ringgit boosted exports.

Tan Sri Lau Cho Kun, who heads Hap Seng Consolidated Bhd, made it to the billionaire ranks with a net worth of US$1.08bil (RM3.8bil) on the back of robust plantation and trading revenues.

Software tycoon Goh Peng Ooi, the founder and executive chairman of Silverlake Group, saw his net worth rise by US$450mil (RM1.6bil) to US$1.55bil (RM5.5bil).

- The Star Asia News Network

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