The offshore and marine sector in Singapore is not a nice place to be at the moment.
Because of the sharp decline in oil prices seen over the past two and a half years, many companies from the sector, such as Ezra Holdings Limited (SGX: 5DN) and Ezion (SGX: 5ME), are struggling with sharply lower profits or losses. Others, such as Swiber Holdings Limited (SGX: BGK) and Swissco Holdings Ltd (SGX: ADP), have already thrown in the towel and are trying hard to restructure their businesses for the future.
Back in November 2016, the Ministry of Trade and Industry had decided that the sector needed some help and set up financing support schemes. And just today, the Business Times reported that another government-related entity has decided to step in too.
According to the Business Times, JTC, Singapore’s national developer of industrial infrastructure, has given rental rebates of between 3% and 10% to all its offshore and marine tenants and lessees for 2017. JTC has around 250 such tenants and lessees.
This rebate comes on top of a previous lowering of rental rates by JTC for industrial facilities and land that was made because of a slowdown in the industrial property market over the past two years.
JTC’s rental rebates for offshore & marine companies can, in essence, be seen as a form of subsidy for these companies. But sadly, regardless of the rebates and financing schemes offered to these companies, the fundamental challenge for them still remains. Many of them took on too much debt during the boom years and are now finding it hard to service their loans during this downturn.
The lower rental rates in 2017 is definitely good news for offshore and marine companies that are tenants or lessees of JTC.
But, for the leveraged offshore and marine companies to really come out ahead stronger for the future, they may need to make the hard choice of either raising a huge amount of equity to shore up their balance sheet or cut down the scale of their operations drastically.
The oil and gas industry has suffered through many boom and bust cycles. However, most companies would only have one “life.” If a company is unable to weather through a storm, it is game over for its shareholders. And to survive the current storm battering the oil and gas industry, the companies within would need strong balance sheets.
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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 writer Stanley Lim doesn’t own shares in any companies mentioned.