Photographer: SeongJoon Cho/Bloomberg

Nam Cheong to Restructure in Blow to Singapore Bond Market

  • Group won’t be able to pay interest and principal on debt
  • Debt restructuring entails haircut, debt-to-equity conversion

Nam Cheong Ltd. is set to renege on some of its borrowings, in the latest blow to Singapore’s bond market as the shipbuilding and offshore oilfield services industry struggles to rebound from a slump in oil.

The Kuala Lumpur-based group has decided to temporarily cease repayment on all borrowings, including a semi-annual coupon due July 23 on S$75 million ($55 million) of notes, it said in a Singapore exchange filing Thursday. The group, which had 1.84 billion ringgit ($429 million) of bank loans and bonds on March 31, is seeking a moratorium on principal repayments and asking creditors for a haircut and to convert their debt into equity.

Nam Cheong’s debt woes reflect widening cracks in the region’s offshore and marine services industry, triggered by a slump in oil prices over the past three years and a cutback in spending on exploration. Three groups in the sector including Swiber Holdings Ltd. have contributed to some of the S$1.35 billion of defaults in Singapore’s bond market since late 2015, according to data compiled by Bloomberg.

“It could be a protracted recovery for the industry, as its rebound is contingent upon sustainably higher oil prices so that oil majors feel confident to resume large scale capital expenditures,” said Bertrand Jabouley, an analyst in Singapore at S&P Global Ratings. The company was still investing in vessels when signs of troubles were showing some 18 months ago, he said.

Industry Troubles

Swiber Holdings has remained under judicial managers a year after its debt crisis, Rickmers Maritime has opted to liquidate and Ezra Holdings Ltd. in March filed for bankruptcy protection in the U.S.

Nam Cheong has three unrated bonds with a face value of S$365 million, indicated at about 20 cents to 26 cents on the dollar, according to Bloomberg-compiled data.

The company has started talks with shipyards to cancel or defer vessels under construction and is also looking to sell existing ships on its fleet to boost liquidity. About 74 vessels ordered mainly from Chinese shipyards may not be fulfilled, Nam Cheong said in the filing. It may also lose deposits placed on these orders and may have to pay some $770 million for the unpaid amount for these contracts.

Nam Cheong has hired PricewaterhouseCoopers as financial adviser and Drew & Napier and Skrine for legal advice.

In a separate filing, Nam Cheong said it’s planning to seek court approval to implement a debt restructuring plan involving its bank debt and bonds in an effort to stave off liquidation.

Moratorium Sought

The company is seeking a moratorium from bank lenders in Singapore and Malaysia, saying it won’t be able to pay debt principal in near future. It’s asking creditors to consider making an exit with cash payout with a voluntary haircut or convert their debt into equity.

“Liquidation will very likely result in very minimal recovery for the lenders and noteholders, if at all,” it said.

“Nam Cheong’s problems are a continuation of the industry rebalancing process as we moved from a period of historically high oil prices to one where they have stabilized at levels about half of what they were a few years ago,” said Todd Schubert, head of fixed-income research at Bank of Singapore, the private banking unit of Oversea-Chinese Banking Corp. “We could certainly see more defaults as the weaker players are forced out of the market as it moves toward equilibrium.”

— With assistance by Denise Wee, Chanyaporn Chanjaroen, and Abhishek Vishnoi

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