COLUMN | Mistakes were made in Singapore (and Cambodia): Pacific Radiance, Swiber, Keppel, and KrisEnergy [Offshore Accounts]

Everyone makes mistakes, and in the good times they can be concealed amid the optimism of a boom. In the bad times, however, they are harder to hide. This week we look at the various strategies for managing problems in the offshore industry in Singapore. What the Lion City lacks in its own oil and gas reserves, it makes up for with a surfeit of troubled offshore companies.

Pacific Radiance – keeping it in the family

Blood is thicker than water, and working with family members even in public listed companies is a great way of maintaining control over all aspects of the operation. But until I read the recent results filing from Pacific Radiance (here), I had not been aware of just how powerful the grip of the Pang family was over the struggling offshore support vessel company.

Father, sons and uncles

Not only is the company’s main shareholder and executive chairman Mr Pang Yoke Min, but one of his sons, James Pang Wei Kuan, is the acting chief executive officer, and his other son, Anthony Pang Wei Meng, is executive director and acting chief commercial officer.

The chairman’s brother-in-law (and so also the acting CEO’s uncle), Alphonsus Ang, is the general manager of procurement for the company, whilst another brother-in-law, James Ang, is the ship repair manager. Five family members in the executive team seems excessive even by the standards of Singapore.

Another director, Lau Boon Hwee, previously worked with Mr Pang at Jaya Shipbuilding and Engineering, where Mr Pang was also a shareholder and director, according to the filing.

Lower losses, lower wages

Pacific Radiance is headquartered in Singapore and has been in a stand-off with creditors for several years now, as it seeks to restructure its US$408 million of bank loans and US$75 million of unsecured notes. The 2020 results were nothing special – commendably, the directors and key management personnel even took pay cuts to US$1.3 million in total in 2020, down from US$1.7 million in 2019, according to the annual report (here), as the company reported a US$57 million net loss, including US$23 million of impairments. This was an improvement on the US$82 million net loss for 2019.

Zombieland?

Critically, however, Pacific Radiance generated net cash inflow of US$2.5 million over the year, and reported that “net cash inflow from operating activities was US$7.3 million.”

This is why the company refuses to die. It’s bleeding red ink in the accounts, but Pacific Radiance doesn’t bleed cash. As result, this month’s annual report contained an update on a planned restructuring, following the failure of its efforts to merge or be acquired by Allianz of the UAE (which we reported here).

Sell the ships but continue to manage them

We learn that the Pang clan has a cunning plan to restructure the company’s debts by selling them to an outfit mysteriously known as “the third financier” (who is never named), and to continue business as a pure-play ship manager of the vessels it formerly owned, under contract to the new investor.

Pacific Radiance at group level “is currently working towards having a separate letter of agreement executed with the third financier to, following the acquisition of the loans, restructure the loans through the purchase of vessels from the group so as to release and discharge the group of its liabilities in relation to the loans and to collaborate with the group and appoint the group as ship managers of the vessels with ship management contracts. Due diligence on the group by the third financier is progressing…”

Everyone loves a family-run business, but could there be too many of the Pang family running Pacific Radiance? We’ll leave that for the new investor to decide when the deal is finally done. Due diligence permitting.

Swiber Holdings – put the mistakes under judicial management

It seems hard to believe that Swiber Holdings is now approaching the fifth anniversary of entering judicial management. Judicial management is the Singaporean equivalent of Chapter Eleven, but where the process is conducted at a glacial pace, with the space-time continuum seeming to operate in a parallel reality, with the only constant being the large monthly fees paid to the judicial managers. To quote Cyndi Lauper (here), judicial management keeps being renewed “time after time”.

The embattled, Singapore-based construction player collapsed in 2016, but wasn’t liquidated, as it should have been. Instead, its main lender, state-owned bank DBS, decided that it was in the interests of creditors to place the company under judicial management, a process designed to allow an orderly restructuring of the company’s debts whilst sheltered from claims.

Mr Pang Yoke Min of Pacific Radiance also holds over forty four million shares in Swiber (here), it is worth mentioning.

DBS had half a billion reasons not to liquidate

Given that DBS reported that its total exposure to Swiber was a mind-blowing SG$721 million (US$543 million), we can see why the bank was keen to avoid a liquidation of a ragtag band of three heavy-lift construction barges, some anchor handlers, and accommodation units, and three submersible launch and float-over barges.

Quite why Swiber remains a ward of the court after nearly five years is not clear. KPMG Services had its mandate extended until June 30, by the judge supervising Swiber, a judge with seemingly infinite patience.

White knights walk

Rather like the efforts of Pacific Radiance to find a saviour through the approaches of various financial investors, so Swiber has had its fair share of white knights, all of whom walked away, without actually saving the business.

In 2016 it looked as if private equity company AMTC would rescue Swiber through a US$200 million investment, as reported by the Straits Times here. It didn’t.

In January 2020, Canada’s Seaspan Corporation said its plans to invest up to US$200 million in Swiber had fallen through, after over a year of discussions. Swiber’s creditors had approved Seaspan’s proposed restructuring in May 2019. Once again, they were disappointed.

LNG power plant in Vietnam

In December 2020, Swiber’s Saudi-Arabian partner Rawabi Holding Company (the joint venture partner of Vallianz Holdings in a fleet of anchor handlers operating in the kingdom) proposed (here) that it would invest US$10 million to create a “New Swiber”.  As if that was what the world had been demanding, “Give us New Swiber! And New Coke, and New Kids on the Block!”

The investment is on the back of a proposed LNG power plant to be constructed in Vietnam, which Swiber has been negotiating for several years now. Rawabi will take 80 per cent of the new company, the creditors 14 per cent, the old shareholders three per cent, and the “hard working” Swiber executives who drove the company into bankruptcy the final tranche of three per cent.

They’ve earned it, I am sure.

Some caveats

Like me, you are probably asking what the operation of a fleet of offshore construction barges focused on installing shallow water platforms and jackets has to do with the construction of an LNG power plant in Vietnam? Surely Saipem and Technip are the two companies with experience in the construction of LNG power plants, not Swiber, and not Rawabi?

Like me, you are probably wondering why the government of Vietnam would sign up a company that has been in a debt restructuring process for over four years and cannot pay its creditors, to build a critical infrastructure project?

Like me, you might wonder whether such an important project might, er, be tendered by the Vietnamese government in a transparent and public process? Not just awarded to Swiber with no questions asked.

Like me, you might question how the one billion US dollar cost of the project will be funded if “New Swiber” is capitalised to the tune of US$200 million of new funds only? And doesn’t US$1 billion look a little skimpy for an LNG-to-power project in Vietnam? Malta’s Electrogas spent US$600 million on a small project with Bumi Armada for its population of just half a million people, one which it found to be mercifully free of corruption, according to its own study (here).

Wonder away, but don’t expect any answers from the company, or from Rawabi. Swiber’s lack of experience, lack of finance, and lack of equipment related to LNG seem to be no bar for its participation in the project in Vietnam.

Raymond Goh doesn’t go

But as at Pacific Radiance, the ongoing process serves the existing management very nicely. Indeed, the transfer of the employment of Raymond Kim Goh, who is the existing Executive Chairman of Swiber, to New Swiber, along with at least 80 per cent of the mates he nominates to go across, is one of the conditions precedent of the proposed deal.

Whether New Swiber and the dream of Vietnamese power from Swiber’s LNG plant actually materialises is beside the point. If it doesn’t, the judicial manager seems perfectly happy to keep Raymond Kim Goh as chairman of Old Swiber, maybe for another five years or more, as the restructuring is dragged out.

And I am sure Raymond will be happy to stay for…well, we can’t report on his salary, because the judicial manager appears not to publish this information to the public, nor his own fees, either. Nor Swiber’s recent results. At least Pacific Radiance has the decency and the obligation to file its financials and executive pay.

Please shine some light, Bob Yap Cheng Ghee, Joint and Several Judicial Manager. The reasons for Swiber’s dramatic collapse deserve to be scrutinised, and the role of the board in the process should also be examined in public, rather than be rewarded by shares in the new, restructured company, and their salaries paid for years and years, out of funds that should be recoverable to creditors.

KrisEnergy – disappointing production, uncertain future

If you thought Swiber seemed to be the biggest failure in the offshore scene, bigger than Emas Offshore, MEO, Pacific Radiance, Kreuz Subsea, and possibly even Ezion, you were wrong.

The dream team of Keppel and DBS appears to have managed to concoct another, bigger offshore disaster in the form of failing oil company KrisEnergy (no hyphen), which is “on the verge of collapse” (here) following miserable production from its Apsara oil field in Cambodia, which came into production last December.

KrisEnergy had forecast of peak production of 7,500 barrels per day, and was relying on the field to provide the cash necessary to fund its ongoing operations, including payments to its floating storage contractor Rubicon. Rubicon had made peace with Kris last November, after a bitter lawsuit, by accepting the contract for the FSO at Apsara, which we reported here.

Unfortunately, on March 30, the gross production rate at the Apsara field was just 2,493 bpd (announcement here) and the average gross production rate for the field for the preceding five weeks from the five producing wells was only 2,883 bpd.

Cambodia’s first offshore oil development is a flop, with under-performing reservoirs delivering low production.

The dagger bleeds

KrisEnergy, named after a Malay dagger, had bled money in the downturn, with a full-year 2020 loss before tax of US$209 million, following a 2019 loss of US$171 million (results announcement here). Keppel took a 40 per cent shareholding in the oil company (as reported here). It has also lent Kris US$87 million through Kepinvest. Keppel estimates its exposure to Kris stands at S$450 million (US$318 million).

In April, Kris announced it had closed the sale of its Vietnamese acreage in Block 115 to ENI (here). Its production from the Wassana oilfield in Thailand had already been shut-in in 2020 due to low oil prices, cutting off vital cash flow. Its shares have been suspended in the Singapore stock exchange since August 2019.

Apsara was the last roll of the dice.

Keppel bleeds too

Keppel has warned that the value of its investment in Kris Energy would be “would be significantly and negatively impacted by the current situation of Kris Energy, especially if it cannot continue to be a going concern”.

Again, we have highlighted the disastrous losses clocked up by Keppel over the last six years. Once again, after scandals in Brazil, problems with errant clients in Mexico and China, and a massive restructuring in Singapore (here) the company’s CEO Loh Chin Hua seems unable to avoid bad decisions.

Loh Chin Hua’s defence of pouring more money into Kris in 2020 was that, since buying an initial shareholding in 2012, Keppel had to “safeguard its investment,” he told analysts last Friday (here). This is the sunk cost fallacy (here) where good money is thrown after bad. He used the same flawed logic to justify continuing the construction of the abandoned rigs in Brazil.

We say again; it’s time he moved on.

At the same time that all this bad news from Kris was unfolding, DBS’ analysts upgraded their outlook on Keppel shares to “buy” and upgraded the target share price (here). You literally could not make this up.

There are no alternatives

Faced with the failure of its production plans, Kris said it has not been able to propose an alternative restructuring plan to DBS. DBS has provided a US$200 million revolving credit facility to Kris.

“Therefore,” Kris warned investors, “the revolving credit facility will not be extended as stipulated conditions have not been fulfilled.”

Quite how DBS and Keppel will recover any cash is not clear. Indeed, shareholders may have to put in further funds. How and why?

Cambodia and Thai decommissioning cost

We have already covered the shocking problems in Australia and New Zealand where bankrupt oil companies Tamarind and Northern Oil and Gas have left taxpayers in the hook for hundreds of millions of dollars of decommissioning costs for two FPSOs and associated infrastructure (here).

The collapse of Kris would leave two further oilfields, Wassana and Apsara, to be decommissioned and removed, at the likely cost of tens of millions. Any recovery from the sale of what little assets remain will likely be dwarfed by the cost of the decommissioning.

Who pays?

Who is going to pick up the tab for removing the jackets, flowlines, and production equipment from the fields? Who will pay for the plug and abandonment of the five wells in Cambodia and the 14 development wells in Thailand? Kris had only US$44 million in cash at the end of 2020 and will be drawing this down as the Cambodian field continues to drain cash.

It would seem to be cruel to expect the Cambodian government to have to underwrite Kris’ failure, given the negligible royalties it has received from the pitiful trickle of oil from Apsara.

Perhaps DBS can strike a deal with Swiber, where it is effectively the controlling creditor? Swiber’s heavy lift barges would be much better suited to decommissioning than to LNG plants in Vietnam.

These sorry tales of mismanagement cast a shadow over Singapore’s offshore sector and the whole region. We all make mistakes, but DBS and Keppel seem to have made more than most, and more often.