The $37bn problem facing Asian oil and gas

Asia’s oil and gas companies have suffered defaults, delayed results and stock price plunges. But their problems are only just beginning.

Asia’s oil and gas companies are struggling.

Malaysia’s Perisai and Singapore’s Swiber have both defaulted on bond payments, but the problems are much more widespread. Bankers say discussions about covenant loosening or maturity extensions are happening across the sector.

This is despite the rebound in the price of oil. Brent oil now trades above $50 per barrel. That is a far cry from the $112 per barrel it was trading at in 2014 but it is still more than 35% above where it started this year. HSBC’s Thomas Hilboldt, one of the most-respected oil and gas analysts in the region, told FinanceAsia his team was assuming higher prices in its models — namely, $60 next year and $75 in 2018.

But the recovery in the oil price may not be enough to spare the throngs of oil and gas companies that face funding problems.

This is partly because pre-crash exuberance is unlikely to return as the oil price climbs back up. The bigger producers will still try to keep costs down, limiting the business that service providers in the market can win.

The more terrifying problem, though, is the sheer debt-load Asia’s oil and gas companies have taken on. Many of these companies binged on borrowing when the going was good — and they are about to see a scary amount of bonds and loans fall due.

Asian oil and gas companies raised a record-setting $44.97 billion from the loan market in 2014, and hit a similar number the following year, according to FinanceAsia’s analysis of Dealogic data.

They also issued bonds in record numbers. Bond issuance from the sector reached $63.8 billion in 2012, well above the total for the previous two years. In 2013, Asian oil and gas companies raised $53.4 billion.

This debt is starting to fall due.

Asian oil and gas companies will need to figure out a way to pay back more than $43.5 billion of loans in the next two years.

But much more terrifying for them is the $37.7 billion of bonds that will mature in 2017, a jump of more than 70% over this year.

It does not matter that these companies owe more to bank lenders than they do to bond investors. It is the bond maturities that will keep funding officials awake at night.

Companies in distressed situations have a good chance of getting some agreement from their bank lenders. Banks usually know it is in their interests to loosen covenants or accept maturity extensions, and being there for a company in trouble can reap benefits when they turn around. But bond investors are not so forgiving.

It is possible to get consent from bond investors for covenant changes or maturity extensions. This is the route Marco Polo Marine has taken, asking investors in a S$50 million ($36.5million) 5.75% 2016 bond to accept another three years before maturity.

But few investors will accept these offers without getting something in return — and Asia’s oil and gas companies do not have much wiggle-room to sweeten these offers. That means more defaults are not just likely, but almost inevitable.

This will not, to be clear, lead to a seismic shift for Asia’s oil and gas sector, in large part because the biggest companies in the region are state-owned. Liquidity problems at state-owned companies are of little concern, an insurance fund manager told FinanceAsia.

But for the smaller companies, in particular those service providers that rely on the state-owned juggernauts for revenues, the outlook is dire. They have seen their revenues plummet over the last few years, as belts have been tightened and new exploration has been limited. But they are about to see things get a lot worse.

Asian oil and gas companies are facing a $37.7 billion bond repayment problem. It does not look like one they will solve easily.


All bond and loan figures came from FinanceAsia's analysis of Dealogic data.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media