Swiber Holdings

[Musicwhiz]

Business Times - 02 Sep 2011

Swiber eyes Brunei offshore services contract

(SINGAPORE) Swiber Holdings is hoping to secure an offshore services contract from a major oil company based in Brunei that would pay the company US$80-100 million every year to 2016, its chief executive officer said.

'Brunei has been doing offshore oil and gas production for quite a number of years, so there's a certain life span of all these structures in the field,' CEO Francis Wong said. He did not disclose the name of the oil major.

'The pressure in the reservoir will reduce, so as a result of that they need to upgrade the equipment. That naturally will give us work,' Mr Wong added.

Brunei Darussalam is known for its vast reserves of petroleum and gas, which have fuelled the nation's economy for almost eight decades.

Two major companies currently operating in Brunei are Royal Dutch Shell and Total. Brunei Shell Petroleum is a joint venture between Royal Dutch Shell and the government of Brunei for oil and gas exploration and production.

Mr Wong also expects offshore construction activities to pick up in the next 12-18 months, driven by Asia and the Middle East, despite the weakening economic outlook in the US and Europe.

Up to 2016, the company has identified 30 potential projects worth US$45 billion in the Middle East, 30 projects valued at US$6.2 billion in South Asia, and 88 projects with a total value of around US$4.3 billion in South-east Asia.

These will be a combination of newly formed and existing sites. Mr Wong said that he hopes to achieve gross profit margin of 15-20 per cent across the markets that Swiber operates in.

'Based on the bidding activities happening now in the industry, I would say that compared to 2009, 2010, it's quite a different scenario,' Mr Wong said. 'Offshore construction activities will pick up 12-18 months from now.'

He added that he expects a utilisation rate of 70-80 per cent across Swiber's vessels in the next 12 months, comparable with the company's historical level.

Swiber has a fleet of 50 vessels, comprising 12 construction vessels and 38 support vessels. The company had an order book of US$752 million as at Aug 15, which is expected to contribute to its results over the next two years.

Mr Wong said that based on the feedback that Swiber has received, the company is comfortable with an oil price of around US$55-65 per barrel for the shallow water projects that it is traditionally strong in, depending on the country.

In the industry, shallow water tends to refer to water depths to 400 metres.

'The outlook for offshore services is still positive. There are still a number of jobs out there and people are ramping up production,' said DMG & Partners analyst Jason Saw.

'If oil price were to go down to US$50-60 a barrel, the shallow-water jobs will still be there, whereas some of the deep-water projects will require US$80-90 for them to be feasible.' However, Mr Saw noted the competition for projects remains intense, which may put some pressure on Swiber's profitability.

Other risks include project execution and the company's relatively high gearing level, he added.

Swiber competes with larger companies such as McDermott International and Saipem. Swiber shares were down 2.5 cents at 53.5 cents. --

Reuters

(Not Vested)

[Musicwhiz]

Business Times - 27 Oct 2011

Hock Lock Siew
The pros and cons of Swiber's perpetuals

By SIOW LI SEN

SWIBER Holdings began marketing on Monday a proposed issue of $50 million perpetual preference shares with an indicative 8 per cent coupon or dividend, and targeted at private bank clients. The proposed perpetuals are sold at a minimum of $250,000.

So far the response is understood to be so-so, which is not surprising given the overall market uncertainty, though the company did sell in a day last week (Oct 19) a plain vanilla $60 million 5 per cent one-year debt.

But perpetuals - bonds which the company may never redeem - are more exotic debt instruments and take getting used to. Last month, Ezra Holdings, also an oil and gas service provider, canned its proposed issue of perpetual bonds citing market volatility.

Swiber's effort includes structuring several features to reassure potential investors, including a step-up of a further 2 per cent dividend if not called in the third year. This means the investor could get a 10 per cent dividend if the perpetual is not redeemed in the third year.

Additional protection came in offering another 2 per cent dividend in the event of a default. Investors also have the option to convert into ordinary shares in the event the company defers a second dividend or if it defaults on the dividend payment.

It seems, though, that instead of finding comfort, some found the 'default' features perplexing. Given that perpetual preference shares are still pretty new instruments here and not well understood, structuring event of default deterrents seemed to have confused investors further.

The confusion is not unsurprising. While the local banks have sold several tranches of perpetuals here, only two issuances have been launched by non-bank corporates - Hyflux and Cheung Kong Holdings.

Issuing perpetual securities helps beef up a company's balance sheet as it is regarded as equity and will bring down its gearing ratio. The dividends are paid out of retained earnings and do not add to the company's interest expense.

Swiber has said the proceeds will be used for general business purposes including financing vessels. The proceeds will help refinance at a much lower rate Swiber's sale and leaseback vessels which are costing about 16 per cent per annum in interest costs, and so should improve its cash flow somewhat. The company has 14 vessels under sale and leaseback and its off-balance sheet debt or operating lease commitment is about US$821 million, according to its FY10 annual report.

In a note last month, CIMB analyst Lim Siew Khee said that assuming Swiber can raise US$80 million (40 per cent of its market cap as proposed by the company) to restructure some of its sale-and-leaseback vessel arrangements, its net gearing could improve to 0.8 times from one time.

So are the perpetuals an attractive investment given the increasingly more risky economic climate? Private bankers say the increasing preference of clients is to have plain vanilla products.

Does this mean that investors won't bite? Or does it mean that as companies like Swiber try more innovative ways of raising money, they are running ahead of their investors?

One banker said the way to look at it is that if one is already a Swiber equity investor, holding its perpetuals is a move up the capital structure since these securities rank ahead of common equity. Put another way, if you're already an equity investor, you're not taking on more risk, though that is not entirely the whole story. With perpetuals, one is taking on liquidity risks since these instruments are not well traded in the secondary market - hence the convertibility feature.

Of course, whether one is considering the perpetuals or buying plain old Swiber shares, investors must first assess the potential of the company and the risks surrounding its business and the industry it is in. A good place to start would be the 309-page perpetual prospectus.

[Musicwhiz]

Business Times - 15 Nov 2011

Fair-value and forex gains boost Swiber Q3 profit

By YEO AIQI

MAINBOARD-LISTED Swiber Holdings has posted a near doubling in third-quarter net profit to US$13.52 million, from US$6.97 million a year ago. Revenue for the three months ended Sept 30, 2011, climbed 12.5 per cent year-on-year to US$137.73 million.

The Q3 performance was helped by a 108 per cent surge in 'other operating income' to US$16.1 million, from US$7.7 million a year earlier. 'The increase was due mainly to foreign exchange gain of US$4.4 million and changes in fair value of financial derivative embedded in the convertible bonds of US$9.4 million,' said Swiber.

Also in Swiber's favour was a sharp 92.6 per cent year-on-year drop in 'other operating expenses' to US$747,000, from Q3 2010's US$10 million, which was mainly due to fair-value and foreign exchange losses.

Swiber, an integrated construction and support services provider to the offshore oil and gas industry, attributed its revenue growth to progressive revenue recognition from contracts in South Asia and South-east Asia.

But gross profit margins dropped to 16.6 per cent from 21.7 per cent a year ago as cost of sales climbed 19.8 per cent to US$114.9 million.

Earnings per share were 2.7 US cents, up from 1.4 US cents a year ago.

For the nine months ended Sept 30, 2011, Swiber's net profit attributable to shareholders increased 6.4 per cent to US$30.6 million from a year ago while revenue jumped 49.5 per cent to US$468.94 million.

On the outlook for Swiber, Francis Wong, group chief executive officer and president of Swiber, said: 'Offshore exploration and development activities will continue to increase with prominence, sustained by the constant need to repair and maintain ageing oilfield structure, replace and locate new reserves, driven by the global structural demand for energy. Barring unforeseen circumstances, we are confident that Swiber will benefit from the positive outlook of the offshore industry. At the same time, we remain prudent in managing our business operations and cost efficiencies.'

Swiber expects its order book of about US$1 billion to contribute to its result over the next two years.

The stock of Swiber closed trading yesterday at 59.5 cents, up one cent.

[Musicwhiz]

Business Times - 07 Feb 2012

Swiber's latest wins maintain order book at over US$1b

It bags US$216m in Asian deals and US$38m Middle East contract via joint venture

By CERELIA LIM

SWIBER Holdings is off to a strong start this year, propelled by contract wins worth some US$216 million and a separate US$38 million milestone contract in the Middle East through a joint venture.

The mainboard-listed integrated construction and support services provider to the offshore industry said yesterday that the US$216 million deals were for offshore construction and vessel chartering contracts in South-east Asia and South Asia.

It added that the latest deals helped to maintain its order backlog at more than US$1 billion.

The Asia-Pacific projects are expected to be completed by 2013.

The Middle Eastern deal - from a major oil producer in that region and which includes chartering of support vessels for a committed period of three years and an additional option period of two years - is expected to continue until 2017, if all options are exercised.

Swiber's Middle East joint venture was established in 2008 to provide services in the field of offshore construction.

Group CEO and president Francis Wong said: 'In comparison to the first quarter of 2011, this year's contract wins have been secured earlier in the year and, overall, in larger contract sizes, signalling the phenomenal growth of the offshore oil and gas sector.'

Analysts' were mixed in reactions to the deals.

CIMB Research raised the stock's target price to 94 cents from 90 cents, with an 'outperform' rating.

'The recession has not stalled the offshore construction industry with strong tender activities. Unlike the previous crisis when it was knocked by vessel delivery delays, high third-party charters and order drought, we see Swiber emerging stronger in this recession,' the brokerage said in a report.

It also upgraded its earnings per share estimate by 9 to 14 per cent for financial year 2012, and said it was trading at 0.6 times its price-to-book ratio, making it one of the cheapest oil and gas mid-cap stocks.

OCBC Investment Research said in a report that it will keep its target price of 58 cents unchanged as the contracts had been priced into its estimates of the firm's earnings.

The counter closed trading yesterday at 67 cents, up five cents.

[Musicwhiz]

Business Times - 16 Mar 2012

Swiber proposes $62.5m share placement

By CARINE LEE

SWIBER Holdings has proposed to issue up to 101.07 million new shares - equivalent to 20 per cent of its existing issued capital - at 63.5 cents apiece.

The integrated construction and support services provider to the offshore industry has appointed Religare Capital Markets (Singapore) as the placement agent.

The placement price is 9.74 per cent below Swiber's volume weighted average price of 70.35 cents for trades done on March 13, the day prior to a trading halt pending the placement announcement.

Fears of the dilutive effect of the placement sent Swiber shares tumbling four cents or 5.7 per cent yesterday to close at 66.5 cents.

CIMB analyst Lim Siew Khee said that shareholders should 'stay invested' while OCBC analyst Low Pei Han is maintaining her 'hold' rating pending the results of the placement.

Swiber said that the placement will allow the company to raise about $62.5 million in net proceeds, which it intends to use to finance the group's general working capital requirements.

'The placement of new shares to raise $62.5 million should help Swiber chase more sizeable projects and break into new markets,' said CIMB's Ms Lim.

The analyst noted that together with Dragados Offshore, Swiber has qualified as the lowest bidder for a pipeline and installation project, where bid criteria include having US$150 million of equity and US$150 million of working capital.

CIMB Research maintained its 'outperform' recommendation on Swiber, with a lowered target price of 79 cents per share compared with 94 cents previously.

Including a recent contract win worth US$36 million, Swiber's order backlog has surpassed US$1.1 billion.

[Layman A]

Hi,

Any brothers here have done an in-depth studies of Swiber before ?

I bought a few lots of swiber share few years back @ $1+ and sad to see the share price being beaten down badly.

Is there any hidden concern behind the "beautifully painted" picture of this company ?

I try to read the annual report but could not figure out why the share price keep dropping.
Offshore sector seems to be recovering and the Swiber seems to have clinched good deal of orders in hand, and the future prospect seems OK.

Should I hang on to my shares ?

Hope to get some feedback from the gurus here.

Thanks a tonne.

[Musicwhiz]

Hi,

Any brothers here have done an in-depth studies of Swiber before ?

I bought a few lots of swiber share few years back @ $1+ and sad to see the share price being beaten down badly.

Is there any hidden concern behind the "beautifully painted" picture of this company ?

I try to read the annual report but could not figure out why the share price keep dropping.
Offshore sector seems to be recovering and the Swiber seems to have clinched good deal of orders in hand, and the future prospect seems OK.

Should I hang on to my shares ?

Hope to get some feedback from the gurus here.

Thanks a tonne.

My blog has some historical analysis of Swiber and its business - you are free to read that.

As to why it is not doing well currently, take a hint from its cash flows and Balance Sheet.

[greengiraffe]

Offshore support industry is another fallen angel of previous bull run.

Ezra is the darling that thrives on share divestment gains, sale and lease back that masked low recurrent earnings.

Even previously dividend yielding Jaya is also a speculator.

Swiber linked to previous Jaya shareholder Pang Yoke Min is just a Johnny come lately. Basically offshore support is also another specialised shipping industry. There is no magic behind it.

The way to play the booming offshore industry is via technology leaders Kep Corp, Semb Marine. Even then, deep sea oil exploration is now facing new competition from onshore shale gas discovery in US.

Tough industry really.

GG

Hi,

Any brothers here have done an in-depth studies of Swiber before ?

I bought a few lots of swiber share few years back @ $1+ and sad to see the share price being beaten down badly.

Is there any hidden concern behind the "beautifully painted" picture of this company ?

I try to read the annual report but could not figure out why the share price keep dropping.
Offshore sector seems to be recovering and the Swiber seems to have clinched good deal of orders in hand, and the future prospect seems OK.

Should I hang on to my shares ?

Hope to get some feedback from the gurus here.

Thanks a tonne.

My blog has some historical analysis of Swiber and its business - you are free to read that.

As to why it is not doing well currently, take a hint from its cash flows and Balance Sheet.

[Wildreamz]

Is there any hidden concern behind the "beautifully painted" picture of this company ?

I think most people that invest in Kreuz Holdings realized that Swiber Holding owns 320,250,000 shares or 57.5% of Kreuz Holdings.

After the recent (well overdued) run up, Kreuz Holdings is currently trading at a market cap of 395.47m. (57.5% = 227.4m)

Swiber holdings has a market cap of 378.48m, which means that the market values the rest of its business at 151.08m.

Hidden value?

[Layman A]

Musicwhiz,
Thanks for the prompt reply. How I wish I have read your blog regarding Swiber earlier.

Greengiraffe, thanks for your insightful analysis.

Having holding Swiber for so long , and losing money ...
There come a point where I have to make a serious decision on whether to hold on to Swiber futher..., or switch to some blue chip like SPH , OCBC etc that pay out regular dividend.

I have decided to take the opportunity to sell it at 0.665 today, with some losses.
I guess these highly speculative play is not too suitable for me.

Some points I've like to highlight regarding Swiber here :

1. Highly leverage and cash tight, just like Olam, but the difference is Swiber do not have a Temasek behind them.

2. The issue of $160 million 7.125% fixed rate note.
Such high borrowing cost will practically eat up all their profits.
The net profit margin of 1Q13 is 8.3%, and they are borrowing at 7.125%, how much is left for the profit margin.

3. Accounts receivable
This is the key point that prompt me to dump Swiber.
In the 1Q13 financial report, they deliberately hide it, but digging further, in the FY2012 report, I found out that the amount have balloned to US$524 millions !
This really have spooked me out .

Consider this, the total revenue 2012 is US$952 millions, net profit is US$62 millions,
but the outstanding amount of receivable amount to US$524 millions !
I think they really have to work harder to recover some of the amounts that the customer owed them.

The above is my opinion for those who wish to plunge their head into this counter.
Good luck.