The Swiber bankruptcy came out of the blue, but a quick review of the case offers several lessons for all investors. Investors should look beyond the fanciful presentation and drill down on the key financial numbers.
Would you invest in this company?
Founded in 1996, this company is also listed on SGX Mainboard. In 2008, it was featured on Forbes Asia “Best under a Billion” list for being among the top 200 firms in Asia-Pacific with consistent growth in both sales and profits over three years. In 2010-2013, it was among Brand Finance’s “100 Top Brands: Singapore’s Intangible Assets and Brands”.
It currently operates “13 state-of-the-art” construction vessels with a workforce close to 2,700 employees from 35 different countries.
Revenue for the past 3 years were between US$700m to US$1b.
In terms of credit facilities, the company enjoyed good support from both banks and bondholders. In 2015, total bank borrowings was US$330m, while notes payable amounted to US$530m.
The only dark cloud horizon is that the offshore & marine industry that it operates in is in a slump.
In its annual report, its Executive Chairman wrote, “The oil crisis will come to pass but the valuable insights and learnings it has given us should remain. More than ever, we are steadfast in our commitment for the long-term sustainability – so that when the recovery comes, [we] will be better equipped to capture the opportunities that will arise.”
Sounds decent… so would you invest in them?
Swiber goes into judicial management
If you have invested in this company’s stock or bond, you would probably have lost your entire investment. This company is Swiber Holdings. Last week, Swiber said it will unwind itself and liquidate the company. At the same time, several directors resigned. Shortly after, the company reversed course and said it will now seek judicial management instead of liquidation. Obviously, there is plenty of arm-twisting behind the scenes.
But regardless of whether it proceeding with liquidation or judicial management, shareholders and bondholders will probably lose their entire investment.
The company is running out of money and time to satisfy creditors. Also, the abrupt resignations – never mind the back-pedaling later – imply that the management has also lost faith in the entire endeavor.
Simply put, nobody is interested in saving Swiber. The next course of action is to salvage as much as possible.
Under judicial management, there is a higher chance of recovering more money. But this money is for employees, suppliers, bank lenders and senior creditors. By the time bondholders and shareholders come into the picture, there could be nothing left.
What can we learn from this Swiber episode?
Lesson #1: SGX Listing does not mean anything!
Just because a company is listed on SGX (or any other stock exchange for the matter) does not mean that it is a good corporate citizen. Olam and Noble were both plagued with scandals. Lehman went bankrupt.
Lesson #2: Industry accolades also do not mean anything!
Here’s a tip: Most industry accolades DO NOT mean anything. The selection processes of most industry contests are often gamed by those in the know. Those in the PR and IR businesses will know what we mean. We won’t say more – otherwise we’ll be revealing too many industry secrets.
Lesson #3: Too much Debt + Low Profitability = Time Bomb
Swiber’s profitability was declining for the past 3 years, while its debt remains too high. This makes it vulnerable to any external shocks. When oil prices collapsed in 2015 and offshore projects dried up, it is only a matter of time before it imploded. See this article for further details.
Lesson #4: Difference between Secured and Unsecured Debt
Secured debt often earns lower interest rates than unsecured debt. But secured debt is safer because the collaterals can be sold to recover the owed amounts. In Swiber’s case, the collaterals would be properties and vessels. Unsecured creditors (i.e. the bondholders) can only claim after the secured creditors are satisfied. In most cases, there isn’t much left on the table.
What can crowdfunding investors learn from this?
Although crowdfunding investors are not affected by the Swiber bankruptcy, they can also pick up some important lessons from this episode. Listed companies can also fail. And investors should look beyond the smooth presentation and zoom directly into the key financial ratios that indicate whether a company’s creditworthiness. For more details, please refer to our previous article on what we look out for in a p2p loan.
If the borrower look risky, don’t lend. If you have to, lend on a secured basis. Never do unsecured lending to a risky borrower. It is no different from gambling.