Last updated: 29 July 2016
Swiber filed for bankruptcy.
Now what, for shareholders, and even bondholders?
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There is a hierarchy of claims. It can be simplified to this:
1.Secured Debt Holders (assets are collaterized for the loans)
2.Unsecured Debt Holders (IOU without any assets collaterized)
In such bankruptcy cases, bondholders should be in a better position than shareholders to make a claim. But it isn’t necessarily so if the Company does not have enough assets to distribute. Hence, bondholders can still be left with nothing.
The disclaimer is that I am not a corporate lawyer and the purpose of this article is a curious pursuit to figure out if bondholders and shareholders are likely to get their capital back. It is not, in any way, to be regarded as a document to prove your claims, nor to be treated as an advice.
Secured Debt Holders
Let us determine the secured debt holders of Swiber who have the first claim on the assets. We can refer to the latest annual report (31 Dec 2015) released by the Company.
Swiber owed the banks a total amount of US$332m and it was mentioned the following assets were collaterized for these borrowings (note 16).
1.First legal mortgage over certain vessels and equipment;
2.Assignment of all marine insurances in respect of the vessels mentioned above;
3.Assignment of earnings/charter proceeds in respect of the vessels mentioned above;
4.Lessors title to the lease assets; and
5.Charge on certain trade receivables.
For items 1 to 3, the value of the vessels was about US$600m as stated in note 13 of the annual report.
For item 4, the financing companies would takeover the lease assets and claim against the remaining lease obligations. Would these lease assets be sold? Not sure.
For item 5, the trade receivables amounted to US$442m.
It seems like there are sufficient secured assets (US$1,042m) to cover the borrowings (US$332m). There are a lot of assumptions though. For one, the market value that the assets are sold can be lower than what was recorded in the books 6 months ago.
Unsecured Debt Holders
Swiber owes the Note holders (or bondholders) at a total value of US$535m. These are unsecured debts.
Below is a screenshot of the debt maturity profile stated in the annual report, under note 17.
The cash level in the Company was about US$100m. It is unlikely the bondholders would be repaid before the secured debt holders. As the cash pile is low, the liquidators have to sell away assets to raise cash, in order to repay it to the bondholders.
The shareholders would be the last recipients if there are excess money after the above parties are fully paid. Else, shareholders may get nothing.
You might think as a shareholder you will receive the NAV per share of S$1.42. It is not accurate to refer to the NAV per share because it is very unlikely the assets are going to worth the value recorded in the books. During liquidation, buyers of these assets know the desperation and would low ball the offers. Asset value can vaporise quickly.
I would prefer to use the Net Net value as a good proxy for a quick liquidation value. Or even CNAV, as we take the assets at half their worth. As you can see from the screen shots below, the Net Net and CNAV are negative. Sad to say, I am afraid there might be nothing left for the shareholders after the entire liquidation exercise.
The liquidation process would probably take a few years to complete. Meanwhile, there is nothing much shareholders can do. Just wait for the liquidators to inform you the next course of action. As for bondholders, you might want to check with your wealth managers, or even consult a lawyer, to get professional advice.
Here’s What Other Bloggers Say About Swiber
Swiber Holdings Winding Down – Uncertainty is Not Always your Best Friend by Investment Moat