21 November 2017
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Swiber's diversification plan will need to quell many concerns

Business Times
03 Nov 2017
Tan Hwee Hwee

For instance, what can creditors gain from the proposed Interlink acquisition and diversification into power generation business?

The signs are telling one year after Swiber Holdings entered into judicial management: the erstwhile stock market darling whose fall-from-grace triggered a sell-off on Singapore Exchange, needs to find another anchor business beyond offshore construction to stay viable.

Just one of its four vessels left on its fleet is working off Mexico. All other vessels it once operated were either released back to mortgagees, seized by secured creditors or sold for cash.

Its court-appointed judicial managers from KPMG acknowledged that offshore construction contracting activity would not pick up until 2019, the earliest.

And until maritime claims against Swiber are resolved, the vessels on its fleet could not find work in Indian waters, where offshore construction projects are still being executed.

Swiber badly needs to cultivate a new viable business that generates stable, sustainable cash flows. Its JMs and senior management are now looking to enter power generation business by acquiring Interlink, a Western Australia-based private power generation solution provider with proven track records. Additionally, its executive chairman, Raymond Goh, is looking to tap opportunities in the market for floating power plants, which is projected to expand to US$1.4 billion in value from US$889.6 million in 2017.

Swiber is also seeking up to US$200 million for this new power generation business.

But the restructuring of mounting liabilities on Swiber's books is a pre-condition for both the Interlink acquisition and new equity injection.

So neither Interlink nor the new investors are expected to carry debts likely to still range in hundreds of millions on Swiber's books. The JMs in their Oct 19 update filed with the court stated that they have concluded agreements to receive and/or realise US$18.9 million of assets in their bid to raise working capital. This in contrast to combined net liabilities in excess of US$1.1 billion on the books of Swiber Holdings and its key operating subsidiary, Swiber Offshore Construction as at Jul 31 2016.

All these prompt observers to ask: what can creditors gain from the proposed Interlink acquisition and diversification into power generation business?

The JMs have said that the new equity targeted for the power generation business will go towards funding working capital and capital expenditure of the projects of the new business.

One senior banker further points out that Swiber is unlikely to tap future cash flows from the new business for the purpose of paying down its now massive liabilities.

Clearly, it is also in the interests of Interlink and the new equity investors to ring-fence cash flows from power generation projects. To do so will require deleveraging of Swiber's highly geared balance sheet - the question to ask is at whose expense?

On the equity front, Swiber is also pursuing a share swap arrangement for the Interlink acquisition further to seeking new equity for the power generation business.

US law firm Gibson Dunn's Singapore-based partner, Robson Lee, suggests that in deals similar to Swiber's acquisition bid for Interlink, existing equity faces substantial dilution usually warranting approval from shareholders.

Swiber's JMs have advised that a scheme of arrangement (SA) will be tabled along with the scheduled submission of statement of proposals to creditors in the first quarter of 2018.

Some expect the JMs to extend this SA to Swiber shareholders considering the likely extent of equity dilution.

The terms to be tabled in the SA will also shed clarity on the possible recovery creditors can look forward to from the restructuring of debts for the offshore construction business.

Swiber needs majority approval from stakeholders involved in the coming SA to push through its business diversification. Both creditors and shareholders will demand details before extending their support.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.