Singapore oil players scrambling to avert catastrophic debt defaults

They’re wooing creditors to amend debt covenants.

The oil price downturn has been particularly painful for smaller oil players in Singapore, who are now rushing to amend bond covenants in order to avoid defaulting on their debts.

A report by UOB Kay Hian highlighted that after drastic earnings cuts, some companies are now dangerously close to their debt covenants’ minimum interest cover level of 3.0 times.

“Such a breach would prove catastrophic, due to cross-default clauses on certain secured/unsecured debt that they hold,” said the report.

To avert such a disaster, listed companies are rolling out consent solicitation exercises in order to amend debt covenants with their lenders’ approval.

Companies that have conducted such an exercise thus far are Marco Polo, Pacific Radiance, Ezra Holdings, Dyna Mac and Kris Energy.

Meanwhile, offshore support vessel operator Pacific Radiance is conducting a similar exercise to implement a cure mechanism for its bonds. 

This would prevent them from breaching their current covenant levels of 3.0x as long as the group deposits an amount equal to one interest payment if interest cover falls below 3.0x, or two interest payments if interest cover falls below 1.0x. 

“[Companies are] preparing for a long march. Anticipating a prolonged downturn, companies have begun amending their debt covenants to avoid breaching them,” UOB Kay Hian said.