DBS (Development Bank of Singapore)

Hi Specuvestor,

Sorry I was still on my preparation journey to enter university when "Teamsek bailed out the REITS sector in 2009". Could you provide a summary of what happened? I am interested to learn more because it serves to be a good case study to the present oil debt laden situation in Singapore

Hi CY09

Credit froze in 08/09 during the credit crisis aka GFC and REITS are huge user of credit. Temasek did a rights issue @1.30 for Capitaland in Feb 09 which fell from $7 to $2. The proceed was partially used to subscribe to CMT rights at 0.82 as stock fell from 3.50 to $1.

Keppel land also followed with rights on Apr 09 at $1.09 as stock fell from $7 to $1 and the cash partially flow to KREIT rights issue Sep 09 at 0.93 as stock fell from $2.50 to low of $0.50. AREIT also raised rights in Jan 09 at $1.16 as stock fell from $3 to low $1

These capital raising initiatives unfroze the singapore capital raising market and the rest was history. Business Trust was hit even worse as they had no leverage limits. Even till today nobody trust (pun intended) them to be stable income generator anymore

Those who play with leverage is playing with confidence and must project a confident stance, from Bear Sterns to Olam to Noble to even banks. On a global scale that's why confidence in the USD is very important in a fiat system, and it's highly political that Russia tried to undermine USD during the GFC.

If DBS able to project confidence into the O&G sector the credit will flow again. But that's on a Structural Cashflow basis which can only sustain for a while until Business gets better. If oil price is still weak the Business will continue to be tough for some time while their Asset valuation ie balance sheet continues to dip which will impact their credit. If oil price goes sustainably above $50 the reverse cycle will kick in.

Thanks CY09 for asking the question!

and thank you Specuvestor for the concised answer.. it brings back
lots of memories... some pleasant, some not so.

http://www.todayonline.com/business/anal...ber-losses

Looks like it is not time to accumulate DBS yet.

2Q result released, net profit 1.05billion. Seems quite ok even with Swiber case taken into consideration.

http://infopub.sgx.com/Apps?A=COW_CorpAn...tement.pdf

(08-08-2016, 07:38 AM)ValueMushroom Wrote: 2Q result released, net profit 1.05billion. Seems quite ok even with Swiber case taken into consideration.

http://infopub.sgx.com/Apps?A=COW_CorpAn...tement.pdf

"Total allowances for the half year rose 69% to SGD 536 million". This is a joke, if anyone wants to know.

Why? The next most likely candidate to fall is Ezra. Please take a look at Ezra's financials. See http://www.valuebuddies.com/thread-159-p...#pid132005 for a quick analysis.

Their credit analysts are just delaying the inevitable, especially when DBS is exposed to nearly all the Singaporean oil services companies who are in trouble. One wonders if top management understands this, or if the lending team has hidden all problems from top management.

http://business.asiaone.com/news/the-last-days-swiber - more info about DBS's oil and gas lending there. They provided a bridge loan to Swiber without AMTC even putting money into escrow (not even $1) or AMTC giving a corporate guarantee to Swiber that money would be coming in or making sure there is a walkaway fee for AMTC not completing the investment. For a bank with SGD750m exposure to Swiber, more could have been done.

This is the story from an experience banker, who has more than 30 years of experience with major banks. I trust him. Swiber case is indeed imploded without obvious indicators...

(not vested)

DBS chief Gupta defends decision to extend lifeline to Swiber

SINGAPORE (Aug 8): DBS Group Holdings’ top executive defended his bank's decision to throw Swiber Holdings a $197 million lifeline, indicating the lender was caught off guard by the speed at which the energy-services company collapsed in recent weeks.

Speaking to reporters after the Singaporean bank's earnings report, DBS chief executive officer Piyush Gupta said he had personally checked up on Swiber's financial health three months ago. He said the bank had spoken with a would-be investor to ensure an equity injection would be coming before deciding to extend bridging loans in June and July to the oil-services company, which is now under court supervision.

"The problem is Swiber imploded in six weeks," said Gupta, 56. "Between the end of May through mid-July, people said you should have known - but none of the indicators were showing."

Other lenders to the company also hadn't classified it as non-performing, he said.
...
http://www.theedgemarkets.com.sg/sg/arti...ine-swiber

(08-08-2016, 09:21 PM)CityFarmer Wrote: This is the story from an experience banker, who has more than 30 years of experience with major banks. I trust him. Swiber case is indeed imploded without obvious indicators...

(not vested)

DBS chief Gupta defends decision to extend lifeline to Swiber

SINGAPORE (Aug 8): DBS Group Holdings’ top executive defended his bank's decision to throw Swiber Holdings a $197 million lifeline, indicating the lender was caught off guard by the speed at which the energy-services company collapsed in recent weeks.

Speaking to reporters after the Singaporean bank's earnings report, DBS chief executive officer Piyush Gupta said he had personally checked up on Swiber's financial health three months ago. He said the bank had spoken with a would-be investor to ensure an equity injection would be coming before deciding to extend bridging loans in June and July to the oil-services company, which is now under court supervision.

"The problem is Swiber imploded in six weeks," said Gupta, 56. "Between the end of May through mid-July, people said you should have known - but none of the indicators were showing."

Other lenders to the company also hadn't classified it as non-performing, he said.
...
http://www.theedgemarkets.com.sg/sg/arti...ine-swiber

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.

A person with some basic FA knowledge looking at Swiber's BS can tell the problem. DBS with their team of CFA trained analysts cannot tell? This is already saying something to glaring.

CEO cannot apologises even if the situation is that he is aware. Apologise = admit failure in DD and reckless risk (just like GFC)= people will start digging = worms crawling out of all cans. Now their task is to do damage control.

The big question is will other O&G give DBS similar problem with Swiber's approach? Another one or two big loan holders acting like Swiber should be enough to make DBS's life very miserable or even worse 生不如死。

One worry I have is the possibility of bank guarantee contracts with its O&G clients. Swiber is trying to stop the pay out of 100m+ of its bank guarantee by a subsidiary. Hopefully DBS is not involved. Often its this off balance sheet liabilities which are a threat to a bank's balance sheet.

http://splash247.com/swiber-files-petiti...uarantees/

The mechanics of bank guarantee is that at the start of the contract, the bank does not recognize anything and earns a commission from being the guarantor. Its only when the company defaults, that the bank has to pay out and it becomes a loan on the bank's balance sheet. One of the most prominent bank guarantee in Singapore is the Ezion bond due 2020, which DBS is a guarantor for Ezion. DBS has booked a profit from the commission of selling its bonds; nothing else has been recorded yet.

I am worried that many such deals have been brokered by banks to earn fees, especially for O&G sector and the implosion of this sector will mean --- Company Default, the bank has to pay up --- becomes loan to defaulted company on bank's Balance sheet ---- Defaulted company goes bankrupt, more bad loans for bank. We are very aware that a certain bank in Singapore is experiencing a surge in revenue deriving from non-interest income (hopefully it is not due to this ind of banking products)

Such off balance sheet liabilities are things we investors have to take watch of now.