O&M

O&M: Cash calls on the horizon; smaller O&M players at risk
More cash calls by smaller offshore and marine firms with high debt levels could be on the horizon as funds dry up amid a crude oil slump and OSV oversupply.

Market watchers cite that credit situation between O&M companies and financial lenders are stretched, with the latter unwilling to finance new vessels unless contracts have been secured.

Utilisation levels for OSVs plummeted in 1Q15, in tandem with a 15% fall in charter rates from peak levels, as oil companies scaled back their exploration budgets and capex spending.

Amid the downturn, highly geared firms may be hard pressed to slash charter rates and sacrifice margins for operating cash flow.

Asset disposal is not exactly an option given the lack of interested buyers in an oversupplied markets, which depresses vessel prices further.

The rising risk premiums in the bond markets also leave equity funding as the only feasible option from many of the smaller offshore players.

Likely candidates taking this route include Otto Marine, Swiber and Marco Polo Marine given their high debt levels. At the latest financials, Otto Marine's net gearing stood at 200%, among the highest in the industry, with its short term debt 12.5x larger than its $18.6m cash.

Despite a rights issue in Jan, Swiber's net gearing stayed elevated at 170%, with US$308m debt maturing in 2016 and another US$784m due in 2017. Marco Polo's net gearing is 87.3% but with the operator taking delivery of its US$214m jack-up rig in 2H15, its debt burden is expected to mount.

Maybank-KE believes the earnings downgrade cycle has not ended and there is no urgency to turn outright positive. The house prefers Ezion (Buy, TP $1.55) and Pacific Radiance (Buy, TP $0.80) for their resilience and competitive cost structure.