Making Sense of DBS Group Holdings Ltd’s Stock Price Movement After The Swiber Holdings Limited Debacle

On 28 July 2016, Swiber Holdings Limited (SGX: BGK), a services provider in the oil & gas industry, shocked the market when it announced that it had filed an application to wind its business up.

Since the announcement was made, Singapore’s largest bank, DBS Group Holdings Ltd (SGX: D05), has seen its share price fall by 9.2% from S$16.26 to S$14.76 currently. That’s around S$3.8 billion in the bank’s market capitalisation being wiped off. What gives? Let’s try to make sense of this.

Swiber’s backtracking

Shortly after Swiber made its winding-up-application announcement, the company back-tracked and decided to place itself under judicial management instead. This came after it had discussions with a “major financial creditor.”

According to the media, the major financial creditor could be DBS. Whatever is the case, DBS did reveal on 28 July 2016 itself that it has total exposure of S$700 million to Swiber in the form of loans, bonds, and other off-balance sheet items. (In DBS’s second-quarter earnings released on 8 August 2016, the bank said its Swiber exposure amounts to S$721 million.)

Making sense of DBS’s lower share price

In DBS’s announcement on its exposure to Swiber, the bank also mentioned that it “expects to recover half of it.” In other words, DBS is facing a loss of S$350 million.

Given the prospects of a nine-digit loss, it’s only understandable that market participants are fearful. But, as I mentioned, DBS has seen S$3.8 billion of its market capitalisation go down the drain. There’s a big gap between S$350 million and S$3.8 billion.

Thing is, DBS has S$23 billion in total exposure to the oil and gas industry as of 30 June 2016. The market may be worried about the rest of that portfolio after the fall of Swiber.

In a recent investing seminar, DBS’s chief executive Piyush Gupta shared his perceptions on the sources of worries that investors may have with his bank. One of them was the quality of DBS’s loan portfolio. There are others, such as regulatory uncertainty and the low interest rate environment the world is in right now. These could also have been a factor in DBS’s recent stock price decline – but who really knows?

A Fool’s take

It’s often hard to make sense of a stock’s short-term price movements. But, parsing through the possible reasons could also give valuable insight.

It’s up to you to figure out if the market has over-reacted with DBS Group when it comes to the Swiber debacle.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.