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Can DBS Group Holdings Ltd Recover its S$721 million Exposure To Swiber Holdings Ltd?

Swiber Holdings Limited (SGX: BGK), a services provider within the oil & gas industry, has been in a bit of a pickle recently. And, this has left one of its lenders, DBS Group Holdings Ltd (SGX: D05), with a sour taste in its mouth.

The pickle

On 11 July 2016, Swiber revealed that it had failed in its attempt to raise US$200 million from a preference share sale.

Then on 28 July 2016, Swiber released two statements. One revealed that the company had received letters of demand for payments totaling US$25.9 million. The other one was shocking – Swiber actually filed an application to wind itself up.

Shortly after – in another twist – Swiber changed its mind about winding up its business and decided to place itself under judicial management instead.

Amidst the whole mess, DBS Group revealed in its 2016 second-quarter earnings that it has a total exposure of S$721 million to Swiber.

Special provisions made

In light of the situation at Swiber, DBS Group allocated S$400 million in special provisions for Swiber in its results for the second quarter of 2016. The bank said that the special provisions figure was conservative as it expects to recover more than S$320 million.

In DBS Group’s 2016 third quarter earnings, the bank’s chief executive Piyush Gupta gave an update:

“[On Swiber] there’s relatively good news because we’ve been able to, through the judicial management process, engage with the big customer, ONGC [Oil and Natural Gas Corporation]. And we won an agreement to get the projects restarted. In fact, they should have restarted last week – I don’t have the latest on that.”

There isn’t much in the way of assets for DBS Group to recover its Swiber-related  exposure. As such, the bank is banking on Swiber to restart the projects it has to generate some cash inflow. Gupta continued:

“And as the projects are getting restarted, we’re quite hopeful when they get completed, that will actually help us in the overall recovery process. As you remember last time, we’ve taken provisions of roughly $400 million and at this point in time, we think those provisions will be more than adequate.”

Gupta was also asked about the amount that DBS Group will eventually be able to recover for the Swiber case. He said:

“We still don’t know exactly how much we’ll recover because the project completion will take time. They still have to pay off some vendors to get the projects completed with some working capital.

So it’s too early to demonstrate, but the reason that we took SGD400 million in provisions, we said that should be enough and I’m pretty confident that that will be enough.”

The comments above from Gupta were all made on 16 November 2016. Unfortunately, the good news did not last.

Swiber suspension

On 19 December 2016, Swiber released an announcement regarding its project with ONGC.

According to the release, creditors have taken legal actions against Swiber’s subsidiaries and ONGC, causing delays in the project’s timelines. As a result, ONGC has sent a notice of suspension to Swiber on 15 December 2016. The notice also stated that ONGC will be taking over and executing the rest of the project on its own.

Swiber is exploring options with ONGC to complete the project. But there has been no news further from there. As it stands, the situation on DBS Group’s recoverable amounts from its Swiber exposure remains uncertain.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.