TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issu...
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Analysts rule out dramatic recovery as they look at the fund-raising, takeover and privatisation landscape in the aftermath of the 2014 rout
Malminderjit Singh
31 December 2014
Plunging oil prices have made 2014 a year to forget for offshore and marine (O&M) companies but industry players and observers do not expect things to dramatically improve in 2015, as the industry braces itself for a period of consolidation.
With the price of Brent crude oil falling below the psychological barrier of US$60 per barrel, investors have had a run on O&M stocks in recent months. The Business Times had previously reported that the market capitalisation of 23 O&M firms listed on the Singapore Exchange (SGX) fell 15.7 per cent in a month, as they lost S$5.77 billion over the period from Nov 4 to Dec 4.
“We downgraded the sector to ‘neutral’ on 2 Sept 2014, and the FTSE Oil and Gas index has lost about 20 per cent of its value ever since,” Low Pei Han, investment analyst at OCBC Investment Research, told BT, as she pointed out that at current levels, the valuations of O&M companies are low.
According to Vallianz Holdings’ CEO Darren Yeo, since the “valuations of O&M companies have already declined quite drastically in the last three to four months, this is likely to make it challenging for O&M companies to raise funds in 2015”.
For one, low valuations could hamper their abilities to dip into the capital markets. “IPOs will be deferred, given that valuations of listed players have dropped sharply over the past few months,” Venkatraman Sheshashayee (Shesh), deputy CEO of Miclyn Express Offshore, told BT.
These current low valuations could also heavily influence the shape of the sector in the coming year. “The industry is ripe for consolidation, especially with the objective to drive value in a subdued market,” Mr Shesh pointed out. The industry veteran, who had previously transformed the fortunes of Jaya Holdings as its CEO, explained that the low valuations of O&M companies could lead to takeovers, privatisations or share buy-backs.
“Should oil price volatility lead to more volatility in share prices, companies with stronger balance sheets may seek acquisition opportunities and scoop up others on the cheap. As such, there could be more M&A (mergers and acquisitions) activity,” Ms Low added.
Mr Yeo highlighted that this scenario of low valuations will not only present attractive opportunities for the stronger companies to acquire assets, it could allow diligent investors who can identify O&M companies with superior business models to ride out this down cycle, to have an opportunity to acquire shares at relatively cheap valuations.
Most of the industry players and observers that BT spoke with expect that oil prices, and thus prospects for the sector, could remain muted in 2015. Mr Shesh believes that if Opec remains firm, oil prices could find a new floor next year.
“2015 is going to be challenging. On the demand side, the slide in the price of oil is likely to slow down exploration and production (E&P) investment, which will affect both utilisation and rates.”
On the supply side, Mr Shesh added that the order book is still substantial, which is likely to exacerbate the problem of lower utilisation and rates.
Reiterating, Ms Low noted that risks for the sector next year are more tilted to the downside with the oil price correction. “For one, any further oil price volatility would affect the rate at which projects are being awarded, compounded by the renewed focus by international oil companies on shorter term shareholders’ returns.”
Mr Yeo was, however, more hopeful. “We are expecting crude oil prices to begin stabilising in the first half of 2015 followed by a recovery in the second half of 2015. We anticipate that demand for oil next year will be fuelled by accelerating growth in the economies of the USA, Japan, the UK and certain regions of Europe.”
That is not all. According to Ms Low, the sector may also face the possibility of a credit crunch should the short-term outlook deteriorate. “There are several highly indebted companies in the industry, and it is imperative that they have a favourable debt maturity profile in view of rising interest rates and a likely subdued oil price environment.”
However, not everyone in the sector faces such high risks next year as Ms Low explained that those companies that are operating in segments of the industry with relatively high breakeven costs are more at risk, and that her firm would be monitoring such companies closely.
“The shallow-water fields in the markets that we operate in, particularly the Middle East, remain economically viable due to their lower break-even costs. Hence, these shallow-water oil fields are less impacted by lower oil prices compared to those located in deep waters,” Mr Yeo added.
Mr Shesh, however, sees a more contagion effect developing in the sector as he believes that eventually all segments will feel the heat, beginning with exploration, development and deep-water projects.
“The pain will spread, slowly albeit surely, unless oil prices and E&P sentiment turns in the interim. Shale production breakeven costs are quite high, and many small, independent producers will struggle. Deep-water rig owners, seismic survey service providers, large PSV operators and infrastructure fabrication/installation companies can expect an extended winter. Most shipyards will struggle to survive in the medium term...(they) are surely going to feel some pressure from defaults and cancellations, as well as from a paucity of new orders.”
A lot also depends on who the O&M companies do business with. Mr Yeo pointed out that as the international oil companies (IOCs) tend to be more profit-oriented, some of them have already announced cuts in their capital expenditure budgets for 2015. However, these cuts relate mainly to their exploration activities. “On the other hand, national oil companies (NOCs) generally have relatively stable expenditures for their E&P activities. Although they may take the opportunity to pare costs, we believe it will be ‘business as usual’ for these NOCs.”
At the end of it all, Ms Low pointed out that the oil and gas industry is a cyclical one, and while companies seek to ride on the good times, they will now have to ensure that they are left standing after the bad times are over.