DBS (Development Bank of Singapore)

[Behappyalways]

For DBS, It's 2009 Once More
http://www.bloomberg.com/gadfly/articles...disturbing

[whatamidoing]

http://www.businesstimes.com.sg/banking-...nother-s1b

"He noted that the bulk of the bank's security were charter vessels that are valued every six months, and these have been coming down.

The sector remains under stress and even with oil prices recovering to US$40-45, there were more contract cancellations than in Q1, he said. Oil prices fell to 13-year lows of below US$30 per barrel in January.

At the end of last year, the loan to value against these vessels were running at 50-60 per cent, he said. At the latest valuations at the end of June, LTVs are between 70-80 per cent.

"If I can get the LTVs today, I can recover all of my loans. Assume the vessels don't even get those valuations, and there is another 10-20 per cent haircut, we will still recover all of our loans.""

There is a problem here. OSVs are never going to be able to sell at valuation, or at 10 to 20% haircut. In a similarly oversupplied situation, oil rigs are going for 10% of valuation. Hence, if we are looking at >20% haircut, which is very likely, more impairments and provisions have to be made. Valuers have a conflict of interest - if they value the vessel too low, they are not going to be re-hired by the vessel owner for the next valuation.

Again, unfortunately retail investors do not know all these and will most likely take words and explanations at face value.

Caveat emptor

[CityFarmer]

Indicators were obvious to anyone:
- negative operating cashflow quarter after quarter
- receivables unable to be monetised, yet remained as receivables. No impairment taken
- bidding at crazy low values to win tender contracts and to boost orderbook - which doesn't mean anything if you are going to make $1 of profit off a $1bn orderbook
- overleveraged if you look at simple credit metrics - EBITDA/net debt, debt service coverage ratio, debt to equity

I do not understand how DBS could not have foreseen these - financials are all public, unless their bankers and credit analysts were sleeping on the job. As a shareholder, this is hugely disappointing.

I didn't know Swiber well, before it imploded. For the benefit of VB readers, I have spent some time to check the facts up.

Negative OCF quarter after quarter? Based on shareinvestor.com, the last four (4) quarterly OCF were (in S$ mil)

Q1/2016: 77
Q4/2015: 15
Q3/2015: 128
Q2/2015: 40

Where did you get the "negative operating cash flow quarter after quarter"? We should report the error to shareinvestor.com.

"doesn't mean anything if you are going to make $1 of profit off a $1bn orderbook"? It is undesirable, but shipbuilders are having one common challenge, to keep a reasonable utilization rate in their yards to survive. Probably Swiber was considering the same.

Based on latest public info, net gearing is 1.8x, and interest coverage is 1.2x. It is definitely not good, but common among OSV amid the storm.

(not vested, did a quick job to share few facts, and welcome anyone to correct them with better facts)

[CityFarmer]

http://www.businesstimes.com.sg/banking-...nother-s1b

"He noted that the bulk of the bank's security were charter vessels that are valued every six months, and these have been coming down.

The sector remains under stress and even with oil prices recovering to US$40-45, there were more contract cancellations than in Q1, he said. Oil prices fell to 13-year lows of below US$30 per barrel in January.

At the end of last year, the loan to value against these vessels were running at 50-60 per cent, he said. At the latest valuations at the end of June, LTVs are between 70-80 per cent.

"If I can get the LTVs today, I can recover all of my loans. Assume the vessels don't even get those valuations, and there is another 10-20 per cent haircut, we will still recover all of our loans.""

Would be great if everyone knows that OSVs are never going to be able to sell at valuation, or at 10 to 20% haircut. In a similar oversupplied situation, oil rigs are going for 10% of valuation. Valuers have a conflict of interest - if they value the vessel too low, they are not going to be re-hired by the vessel owner for the next valuation.

Again, unfortunately retail investors do not know all these and will most likely take words and explanations at face value.

Caveat emptor

FYI, LTV for residential properties, is also not at 100%. It is max at 80% to as low as 60% (with only one mortgage loan). LTV is even lower, for those have more than one mortgage loans

http://www.moneysense.gov.sg/Life-Events...-Home.aspx

(more input to the post)

[whatamidoing]

Indicators were obvious to anyone:
- negative operating cashflow quarter after quarter
- receivables unable to be monetised, yet remained as receivables. No impairment taken
- bidding at crazy low values to win tender contracts and to boost orderbook - which doesn't mean anything if you are going to make $1 of profit off a $1bn orderbook
- overleveraged if you look at simple credit metrics - EBITDA/net debt, debt service coverage ratio, debt to equity

I do not understand how DBS could not have foreseen these - financials are all public, unless their bankers and credit analysts were sleeping on the job. As a shareholder, this is hugely disappointing.

I didn't know Swiber well, before it imploded. For the benefit of VB readers, I have spent some time to check the facts up.

Negative OCF quarter after quarter? Based on shareinvestor.com, the last four (4) quarterly OCF were (in S$ mil)

Q1/2016: 77
Q4/2015: 15
Q3/2015: 128
Q2/2015: 40

Where did you get the "negative operating cash flow quarter after quarter"? We should report the error to shareinvestor.com.

"doesn't mean anything if you are going to make $1 of profit off a $1bn orderbook"? It is undesirable, but shipbuilders are having one common challenge, to keep a reasonable capacity running in their yards to survive. Probably Swiber was considering the same.

Based on latest public info, net gearing is 1.8x, and interest coverage is 1.2x. It is definitely not good, but common among OSV amid the storm.

(not vested, did a quick job to share few facts, and welcome anyone to correct them with better facts)

Apologies for not being clear, what I meant was cashflow burn. This is OCF less capex and less financing obligations (repayment of debt, not including new proceeds) and share issues.

Also, note that Swiber adds back financing costs to OCF. This should be deducted to get a better sense of the CF burn.

If you look at the attached image (unfortunately I can't paste it here), you can see that Swiber's problems started way back. What do I mean by this calculation (in USD. also quick and dirty so there might be mistakes)?

1) First we have OCF, which should represent how much cash the business generates. Looks good eh? but...
2) However, Swiber adds back financing costs, which is not representative. They are not a bank or an investment house, they do not use debt to leverage returns. Hence, we remove financing costs. And then, in one of the years there is a massive 100m gain. This needs to be removed from OCF too.
So now we have adjusted OCF. Still looking ok? Not so..
3) We deduct financing cashflow from 1) and 2) to show a company's true cashflow without debt burden. . And more...
4) We deduct new proceeds and borrowings from 1) and 2) and 3) to see at every quarter, how much cash are they burning without new financings. This averages an outflow of 227m a quarter for the past 9 quarters

Every quarter, Swiber burnt a huge amount of cash, and they refinance debt repayments with equity issuances and new borrowings. Eventually, the clock has to stop.

Again, apologies to the Moderator if I have been rude or too negative here. I will stop commenting on this issue - these financials are all public.

[weijian]

I would like to disagree politely because not everyone knows the full story. Since a few years ago, Swiber has been approached many times to solve their capital structure issues - too many types of bonds, perpetuals, in different curriencies for no reason (does Swiber really need a RMB bond...) - and receivables that cannot be cleared. Swiber paid no heed despite quarter after quarter of negative cashflow, maybe because they knew they had DBS as a backer who would do anything.

Those of us in the industry are astounded by how nobody in the stock market saw that at the rate of their cashflow burn, it would never be able to repay its debts unless banks stretch out their loan facilities to 15 to 20 years, which is crazy. This is the same situation with Ezra, and the clock is ticking.

Indicators were obvious to anyone:
- negative operating cashflow quarter after quarter [Note - made a mistake here as pointed out by Cityfarmer. Did not mean OCF. Please see http://www.valuebuddies.com/thread-1928-...#pid132280]
- receivables unable to be monetised, yet remained as receivables. No impairment taken
- bidding at crazy low values to win tender contracts and to boost orderbook - which doesn't mean anything if you are going to make $1 of profit off a $1bn orderbook
- overleveraged if you look at simple credit metrics - EBITDA/net debt, debt service coverage ratio, debt to equity

I do not understand how DBS could not have foreseen these - financials are all public. As a shareholder, this is hugely disappointing.

All of us are looking at the same public financials, but we don't see the same thing. The folks who make the loans at DBS are more employees than owners (while it is the other way around for UOB), period. In 2008, DBS and OCBC issued pre-emptive deeply discounted right issues. UOB tried to hang on and eventually didn't have to go the same path due to the V-shape recovery.

IMHO, our experienced banker is right - Because he was looking at it through his (agent) lens and there was no way he was going to see otherwise. Talk about all the unhealthy metrics, let's take Japan/US as examples. Anyone wants to bet against them now? Now look at healthy companies like GE during GFC2008, it almost went belly-up because the commercial paper market simply froze. So the bottom-line is that a single factor (eg. indebt-ness) will not be enough. A nice disaster needs a few more ingredients to make a good recipe!

P.S. Your posts have been generally informative and i don't "sense" any sort of rude-ness. In VB, we agree to dis-agree as long as the basic tenets of courtesy and integrity has been demonstrated.

[mulyc]

Does anyone know if any analysts have compiled the O&M debt currently held by our three banks? It might give good insight to the exposure currently at risk. Particularly if oil prices continue southwards.

[CY09]

Hi Mulyc, its almost an impossible task, the equivalent of former President's Mr Ong Teng Cheong request for access of information regarding Singapore's financial reserves.

No bank will want to show their true portfoilo, you will have to get info from people on the street.

[HitandRun]

whatamidoing

I'm curious. 

Assuming that you are running DBS, what would you have done vis-a-vis Swiber say 6 months or even 1 year ago?


P.S. AFAIK, I have no direct position in DBS, except through STI ETF.

[mulyc]

Hi Mulyc, its almost an impossible task, the equivalent of former President's Mr Ong Teng Cheong request for access of information regarding Singapore's financial reserves.

No bank will want to show their true portfoilo, you will have to get info from people on the street.

True that. I just thought one of those investment banks would try and compile whatever public information they could get and release a report detailing this. There is this feeling on the street that there is far more than just Swiber that is worrying the heads in our top three banks, and we might not have seen the worst yet.