Industrials

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

So things in commodities are pretty awful right now but spare a thought for Singapore's oil-services industry.

It's not just crude prices that are trending down again. Bank obligations and supplier bills are piling up, and customers aren't paying their contracts. That's bad news when the sector faces $500 million of bonds that mature next year and another $725 million in 2018.

The latest warning came from the world's largest builder of rigs, Keppel Corp. It said quarterly earnings dropped to the lowest in almost a decade amid a glut of vessels and dwindling orders. Smaller rival Swiber also told investors earlier this month that one of its biggest contracts, a $710 million oilfield development, had been delayed. 

These firms have been reliably paying bondholders, even redeeming perpetual notes when they're callable. That good behavior, however, is increasingly a result of other liabilities being pushed out or renegotiated. Accounts payable, a measure of what's owed to suppliers, at the 28 oil-services companies that are publicly traded in Singapore have been inching higher, and in some cases have outright ballooned. The average turnover of accounts payable, meanwhile, dropped to 5.1 times in the companies' latest quarterly filings, from 7.1 times at the end of 2014. The lower that ratio, the longer a company is taking to pay its everyday bills.

Alarming Credit
The aggregate amount the 28 oil-services companies listed in Singapore owed suppliers rose 73 percent between Dec. 31, 2014 and their latest quarterly reports
Source: Bloomberg

Banks are helping companies pull through, but even they've been showing a propensity to request quicker repayments.

Banking on the Banks
Borrowings of oil-services companies have more than doubled since 2011 and spiked recently even as some firms repaid bonds
Source: Bloomberg

What may be of more concern is the fact that this increased indebtedness isn't linked to a rise in investment, which would grow future earnings. Capital expenditures have actually been dropping for the past two years as oil prices fell.

That Doesn't Compute
Singapore's oil-services companies have been investing less, in spite of taking on more debt
Source: Bloomberg

With crude continuing to slip -- and its chance of remaining consistently at a price that justifies many of the contracted projects slim -- something has to give. Shareholders might as well get used to more profit warnings and contract cancellations. And if that's all they have to contend with, they should count themselves lucky.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net