Friday, July 29, 2016

The first domino falls

We just heard news of Swiber sudden winding down. DBS is one of the main banks that loans money to Swiber, so their exposure is about 700 million. That's not a lot of loans, relatively speaking. 700 million is about 0.25% of their total outstanding loans in 2015 and it's about 15% of their total 2015 net profit. But they are confident of getting half of it back and after tapping onto their general provision, they are net loss of about 150 million. How much is that? It's about 3.3% of their 2015 net profit.




Is that significant? No, but the trouble is that it might not end there. Most likely, this is just the beginning of the oil and gas sector contagion that will spread eventually to the banks. When Swiber falls, people will be wondering who is the next company to fail. Ezra, ezion, vallianz, swissco and even sembcorp marine are possibly candidates. They might also have inter-related business interest that joins each other like blood brothers and sisters. So if one fails, it might cause a whole domino effect cascading down the entire oil and gas sector in Singapore.


Whoever is lending most aggressively to them will suffer the most. In their heydays, Swiber is a $6 stock and easily one of the most anticipated growth companies here in SGX. Heck, I even traded Swiber before. DBS and OCBC seems to be the more aggressive of the big local 3 banks, UOB being the more conservative one, so it seems. Maybe that's why the share price of the three banks dropped proportionally to the level of loans linked the the troubled oil and gas sector.


I heard news of 98 million shares of Ezra pledged to DBS and another 98 million shares pledged to OCBC as collateral. When the contagion spreads and the share price falls, it will lead to even more selling as nobody wants to be left with a worthless piece of paper as a collateral. We should expect more of such news in the coming months to come.


Is it a good time to scope up bargains in the oil and gas sector? Be greedy when others are fearful and fearful when others are greedy? I think it depends on your skill in navigating the rubbish from the gems. If you understand the sector well and can see which are the companies that can survive and thrive after the crisis blows over, you'll be the biggest winner. But I know I don't know anything about this, hence I will skip it. In the event of a major market sell-down catalyzed by the bankruptcy of the oil and gas companies, I will rather buy those companies that having nothing to do with this sector but nevertheless got their share price marked down severely, than to buy the troubled oil and gas company at a cheap price and hope that they will survive and thrive.


a) Good company, non troubled sector, low price
b) Good company, troubled sector, low price
c) Bad company, troubled sector, low price


Between the a,b and c, I think (a) should be the top most priority. (b) and (c) are the ones that can make you really rich, but do you have the skills to see separate the (c) from the (b)? It's not as if there's only this sector to focus on, so I'll skip it and live with my choices.

27 comments :

Singapore Man of Leisure said...

LP,

For newbies who have not gone through 2008/09, this will be their virgin experience to see who have hairs on their chests ;)

This salted fish is never gonna come back alive...

la papillion said...

Hi SMOL,

HAHA! It's better to assume salted fish are dead for good than to think that it will one day come back to life. I old already, better don't eat so much salt, not good for blood pressure ;)

Anonymous said...

Ha... lots of sectors also not doing well? Retail, property... so what elso to invest in?

Kevin said...

Salted fish at least still can stir-fry tau geh and cook fried rice. I don't mind if some short-term mayhem descend upon us ;)

yeh said...

wah if semb marine also fail, then very scary.
i have a lot semb cop

yeh said...

so will abalone become salted fish? or salted abalone.

like semb marine? keppel corp?

abalone or salted abalone or salted fish?

la papillion said...

Hi anonymous,

I'm sure there are some evergreens somewhere and some that might even thrive in crisis ;)

la papillion said...

Hi Kevin,

Wah, don't want lah, eat too much bad for health haha!

I don't wish for a mayhem to come, but I'm all prepared for one if that ever happens :)

la papillion said...

Hi yeh,

I think they are abalone but now become salted abalone. Wah, high class salted seafood leh :)

If you think sembmarine is getting on your nerves, why not sell some to make you sleep better? Haha

SMK said...

i see kep corp changing their model well.
hope the prices goes down more on this most recent oil weakness
and bring sentiment down further.
else could be most of the oil weakness priced in.

of course any tumble in broad markets could help bring world consumption further down quickly from the already declining secular price trend due to increasing secular supply glut.

maybe a trump victory might help oil prices a little. lol

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yeh said...

hi LP
not la, heng my job no retrenchment.

i dun have semb marine, but semb corp la.
semb marine got Temasek inside.

not so kia.

STE said...

"Salted fish rebound " ? 咸鱼翻身?from liquidation to JM... Don't think so ,, tough time ahead,,, but guess JM will be better than liquidation , from market's perspective ,,, is this game play by Swiber ? Such 360' degree twist in such short span,,, will this make creditor be more compromised now,,, yet to see,,😃😃

temperament said...

We have to be careful about "Too Much Sick" related or owned coys too.

"Too much Sick" won't think twice cutting the umbilical cord if the coy doesn't serve it's purpose anymore.

The latest example is NOL.

And there are many more in the past.

Business is Business after all.

Who can blame them if you happen to be one of the sacrificed lambs?

Not me but still feel #%&^@$ ah..............

Rolf Suey said...

I agree with temperament that business is business, and not like all people think that Temasek-backed is always ok!

Yes, it will not collapse like Swiber, but can make you loose big big also. And yes, just like all Singaporeans will always think Singapore will be ok.

Disclaimer: I am not referring to Semb and Kep, just in general.

I am in O&G, also consider more inside than retail, also cannot tell.

When price of stocks drop drastically, greed most of the time overcomes logic in us, no matter how logical and careful we think we may be. This is unless you are hit hard hard one time till you "cannot recognise house" - Hokkien!

Even the Swiber owner whom I know personally, they are not as not dumb as retailers think in real life! They are really much more smarter than I dare to say almost all of us here... Still they fall into the trap.

Rolf Suey said...

By the way, the owners lose the company, but they are still ultra-high net worth people of tens of millions.

The poorest is the investor who got nothing from their hard-earn money whether or not they will be retrenched in govt sector or private sector, it does not matter too much!

So advice is better be more prudent.

yeh said...

hi rolf
based on your experience, how long u think OnG will be in doom day?
10 years? 20 years?

Rolf Suey said...

Hi Yeh,

I do not know, because no one will know for sure.

All I know is w/o any special events for eg war, some natural disaster or intended political intervention etc disrupting supply of oil, it's going to be a long harsh winter.

Also beware of stock price trading.

Specific to Sembcorp and Kepcorp businesses, fundamentally it's not always directly elastic to oil price (time lag). The problem now is the no. of vessels even brand new stack up and not in charter, let alone people want to build new one.

Frankly, if you think Swiber, Ezion, EMAS business as a shipowner is no good, I can truly says that shipbuilder being down the supply chain is way much worst!

End of the day, it's not whether we keep our job or if later we worry that the stock market will rebound and if I sell now how? We don't know.

Or it's not about how much money we have. The issue is if we are feeling too painful to see our or our parents or our family members hard earn savings over decades wiped out because of our moment of folly!

It's about threshold also. For instance, tens of thousands losses for me, I can still dun feel nothing at all. Maybe hundreds of thousands, I will feel painful! Something like that....

And on the lips most people can say no problem 10 or 20 yrs but frankly we need to search ourselves deep down to ask if it is really ok for this long.

Not everyone is Warren Buffett, except for some bloggers or professional wanna be who proclaimed in the name of WB!

yeh said...

well, want to sell then long time already sell liao.
they still got others business. Unless they become another penny? definitely wont go bankcrupt. but u think they will become penny?

another thing. well if no business, so far . keppel corp has asked his worker to take No pay leave and retrenchment.

this is what i heard from my friend who is working in keppel.

tml onwards, she stopped working for one year.
i believe semb corp and keppel corp will do something to cut the losses and expenses for this long winter.

they sure smarter than us.

la papillion said...

Hi yeh,

Well, if you're prepared to still hold on after a 50 to 70% drop, then it should be fine haha

yeh said...

Well lp
You are saying Keppel Corp drop below 2
Then Semb crop drop below 1

Then if really 70% below my purchase price Liao.
Hahahhaha. Possible?! You share with me your advise la

yeh said...

Btw lp

I think Semb Corp already drop more than 50% from 2014 peak Liao.
But my price is lower.

So possible drop 70% from the peak?

la papillion said...

Hi yeh,

I don't know what price it'll drop to. But I do know that if you want to hold, you should fully expect such things to happen and you shouldn't feel anything. If not, you have put too much into the stock and should trim some off until you feel comfortable.

I think what the others are saying is that you should be careful. I have no advise to offer.

yeh said...

actually i am comfortable la.

i didn lose sleep or angry or cant control my emotion cus of semb corp and keppel corp.
i have confidence on them.

really arr

although u guys very pessimistic.

temperament said...

By saying the word "pessimistic", emotions is manifested.
Here i repeat:-

"But i don't believe we can invest without emotions when our money is concerned.

WB is more correct i think.IIRC

" Not until you can manage your emotions, you can manage your money."

i always imagine or think a person who has lost his emotions or warped his emotions is "mentally sick".
And is / maybe quite dangerous to society and to himself.

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