Swiber Tests Market Demand for Perpetuals

Lacking of good alternatives to park cash in, high net worth individuals in Asia who want to remain invested in today’s volatile market are turning to corporate bonds and potentially perpetual securities for higher yields. And Singapore listed Swiber Holdings wants to take advantage of this positive market development. Last week, the offshore oil and gas services provider started marketing its proposed offering of SGD 50 million (USD 39 million) perpetual preference shares with an indicative 8% dividend. This follows shortly after the successful closing of its plain vanilla SGD 60 million (USD 47 million) 5% one year debt raised under its SGD 500 million Multicurrency Medium Term Note Programme, established by sole bookrunner DBS Bank in July 2010.

This time, Swiber is selling perpetual preference shares in lots of minimum SGD 250,000 to private bank clients. Investor demand for this relatively new investment instrument was reportedly lukewarm, despite the fact that the shares pay investors an annual dividend of 8% and an extra 2% dividend if the shares are not called in the third year. In the event of default, further protection comes from an additional 2% dividend to the investors and the option to convert into ordinary shares if the company defers a second dividend payment or defaults on dividend payment. Continue Reading

Swiber Seeks Shareholders’ Mandate for Preference Shares Issue

Perpetual securities are uncommon in Asia, but this has not deterred a number of offshore services companies in Singapore from looking into tapping this source of liquidity. Singapore listed offshore services firm Swiber Holdings is seeking shareholders’ approval to allot and issue convertible preference shares, which if converted in full into conversion shares at the conversion price, will not result in the issuance of not more than 40% of the enlarged share capital of the company.

Preference shares belong to a hybrid investment class, which is senior to common shares but are subordinate to bonds. Analysts generally perceive preference shares as a loan to the company, because preference shareholders are not entitled to normal voting rights but are entitled to dividends. In Swiber’s proposed issue, the company is offering convertible preference shares that provide investors the option to exchange for a predetermined number of the company’s common stock. A convertible preference share has features similar to a convertible bond. The differences lie in that preference shares are subordinated to debt of the issuing company and are usually perpetual securities with no maturity date.

Dividends to Swiber’s preference shareholders are cumulative and payable semi-annually at a fixed rate per annum, and there is a built-in dividend step up which may be activated upon events such as the deference of dividends. The issuer may, at its sole discretion, choose to defer dividend payment to the next dividend date. However, during this period, the dividend stopper will kick in and the issuer will not be allowed to declare or pay any dividends, or repurchase or redeem shares ranking junior to the preference shares.

Preference shares are and are not redeemable at the option of the preference shareholders. The issuer has the right but not the obligation to redeem the preference shares on any stipulated optional redemption date, occurrence of a tax event (any change in any tax law or regulation in Singapore) or occurrence of an accounting event (any change in the accounting standards applicable to the company). For the benefit of preference shareholders, preference shares are convertible into fully paid conversion shares during the conversion period. This means that there could be an increase in the number of shares outstanding in the future, and may be earnings dilutive to the existing shareholders. We expect more details to be announced at a later date.

Swiber intends to distribute the preference shares to institutional and accredited investors on a private placement basis and proceeds will be used for general working capital and capital expenditure.

Ship Finance Syndications Back?

The syndication market is showing signs of thawing, as evidenced by the number of shipping and offshore transactions in the market. In September 2010, a syndicate of international lenders made available a syndicated project loan facility of up to an aggregate of USD 110 million to a joint venture company incorporated in the Marshall Islands, to part finance various project and construction costs in relation to the heavy lift derrick pipe laying barge with 3,000-tonne crane. The syndicate comprised arranger ABN AMRO Bank, Singapore Branch, NIBC Bank in Singapore, Credit Industriel et Commercial, Singapore Branch and Northern Barge.

Built by ASL Marine shipyard in Singapore, the vessel was initially delivered to joint venture company Swiber PJW 3000, an SPC with three shareholders, Maas Capital, Siva Group and Singapore listed offshore services provider Swiber Holdings, each owning one third of the shares. The vessel was subsequently put on a 10 year bareboat charter with Swiber. Watson, Farley & Williams acted as lead and English counsel to the lenders. Continue Reading

The Importance of Self Preservation

In 2009, the equity markets had a roller coaster run, but some shipping companies found windows of opportunity for share placements, often tied to debt reduction. Self help through raising equity capital for balance sheet recapitalization is one way to ride through the difficult times. There had been varying degrees of success and among the most notable would be Neptune Oriental Lines’ (“NOL”) USD 972 million rights issue in June and NYK’s recently concluded JPY 116.4 billion (USD 1.3 billion) global equity offering. Continue Reading

Fun Raising Continues

As economists struggle to reach a consensus on whether the global economy has indeed begun a sustainable recovery or this is simply a slower pace of contraction, investors are just befuddled by the strength and endurance of the present stock market rally. But one thing is for sure, shipping companies are wasting no time in taking advantage of this broad-based improvement in market sentiment.

In Japan, Mitsui O.S.K. Lines (“MOL”) issued two series of secured straight bonds – bonds number 11 and bonds number 12 last week and raised over JPY 50 billion (USD 528 million). The first tranche of five year JPY 30 billion bonds carries an annual coupon of 1.278% while the second ten year JPY 20 billion tranche pays investors 1.999% annually. The funds will be used to repay existing borrowings and for the redemption of commercial paper. Both Rating & Investment Information and Japan Credit Rating Agency have assigned AA- to the bonds, acknowledging that the company’s well diversified earnings have a strong capacity to recover in a market turnaround. The bonds, although unsecured, come with a negative pledge. At the same time, the company is said to be in the market for a three year JPY 15 billion (USD 156 million) loan with SMBC as the sole bookrunner. The loan is priced at 30 bp over 6-month TIBOR (Tokyo Interbank Offered Rate). MOL expects some signs of recovery in summer this year and is implementing its JPY 40 billion group-wide cost reduction measures to secure stable long term profits. The ability to secure incredibly low cost funding and execute rapid fleet reduction will prove to be critical for the company emerge stronger in face of the crisis. Continue Reading