Financing for Singapore's SMEs in the Oil & Gas Industry in 2019
Earlier in June 2019, both Shell and ExxonMobil made important announcements, boosting confidence in Singapore’s Oil & Gas (O&G) industry.
ExxonMobil completed a 2-year expansion at its Singapore refinery in Jurong, while Shell increased its storage capacity at its Singapore Bukom refinery. A unit of Rex International, Lime Petroleum AS, also announced an agreement to acquire 30% of 2 drilling licenses in the Norwegian Sea.
We have also seen reports of long-term charters for offshore-support vessels by majors and Engineering, Procurement & Construction (EPC) companies - fleet utilization seems to be improving although charter rates remain depressed. This is consistent with our conversations with various market participants as well as observations from public filings of listed groups.
What do these developments mean for SME business owners in the O&G/Marine industries?
We think that these could be signs that the industry is picking up and we believe that some financial institutions are noticing the increased activity as well.
Why is it so difficult for O&G contractors to obtain financing?
Reason 1 - Negative Sentiments Abound
Since the rapid oil price decline in 2014, the industry has gone through a massive shake-up and headlines have largely been perpetuating doom-and-gloom scenarios for the industry.
Other than fears of supply gluts (supply exceeding demand) due to the shale revolution in the US, there have been increasing demand fears due to the slowdown in developed economies and increased trade tensions.
This was evident in early Jul 2019, when oil prices actually fell by about 4% even after OPEC and partners agreed to extend supply cuts.
Very few, if any, bank officer/relationship manager will be able to convincingly answer the billion-dollar question - “what makes you think oil prices will have a sustained rebound?”.
Reason 2 - Non-Performing Loans in the O&G/Marine Industry
Many banks, local and foreign, as well as non-bank financiers were affected by non-performing loans made to O&G/marine companies.
Financials of companies in the industry continue to reflect the poor business performance of the last few years.
Having taken significant losses so recently with cases still being worked out, many financiers would be extra-cautious about increasing exposure to this industry.
Reason 3 - Multiple Layers Before Payments Reach SMEs
The O&G/marine industry is known to be propped up by a web of contractors and subcontractors serving every function needed from providing manpower to ship-repair services.
The SMEs depend on payments making its way from the end-buyers through the main contractors and by the time payment trickles down, many subcontractors will receive their money late and sometimes at heavily-discounted rates.
The above reasons make it challenging for relationship managers to evaluate the sustainability of the business, build confidence about customer repayments, and most importantly, to convince their credit committees.
In this case, what are the financing options for an O&G/Marine SME in 2019?
Fortunately, with the industry restructuring in its fifth year, prospects in 2019 for the ‘survivors’ do not seem as bleak as compared to a couple of years ago.
While the banks are still extremely cautious, some financial institutions are taking the lead in financing SMEs in this industry:
Product 1 - Factoring / Invoice Financing
In simple terms, a factoring arrangement involves a financial institution buying over invoices and collecting payment directly from the buyers
This allows the SME to unlock funds from its receivables to finance other transactions. The best part of such a structure is that the financing limit can usually grow quickly alongside the business volume of the SME.
While the process can be cumbersome, we usually advise our SMEs to use factoring facilities to complement other term loans that they may have. It is a good way to get the financing tap flowing again.
Product 2 - Short-Term Bridge Financing
These short-term facilities usually run between 1-6 months and rates may range from 1% to 5% per month (i.e. 12% to 60% per annum). Processing fees range from 2% – 5% of the amount disbursed.
We would caution against using such loans to finance ongoing business since they are expensive but if you have a small, short-term financing gap to bridge, these loans can be very handy.
Product 3 - Asset-backed Financing
Finally, if you have hard assets such as property or equipment, there are financiers in the market that will be able to unlock varying percentages (typically 50% to 80%) of the value through providing working capital loans secured by these assets.
Rates range from 5.5% to 10% per annum depending on the type and nature of the assets.
Who are the providers of these types of facilities on Lendingpot’s Business Loan Marketplace?
Lendingpot operates a FREE business loan marketplace that connects SMEs to multiple lenders with only one application. These are some of our lenders.
The business loan marketplace is completely free, we don’t even take commissions from financial institutions in order to keep true to our promise to bring the best value and benefit the SMEs.
|Factoring / Invoice Financing Partner Lenders|
|1||Bibby Financial Services|
|2||IFS Capital Limited|
|3||Goldbell Financial Services Pte Ltd|
|4||Hong Leong Finance|
|5||Capital Match Pte Ltd|
|6||MoolahSense Pte Ltd|
|7||Funding Societies Pte Ltd|
|8||Validus Capital Pte Ltd|
|9||Fundtier Pte Ltd|
|10||Minterest Pte Ltd|
|11||Multiply (by IFS Capital)|
|11||Planworth Global Factoring Pte Ltd|
|Short Term Bridge Financing Partner Lenders|
|1||Xingang Investment Pte Ltd|
|2||North Star Capital|
|3||Funding Societies Bolt|
|5||Capitall Pte Ltd|
|Asset-backed Financing Partners|
|4||Standard Chartered Bank|
|6||IFS Capital Limited|
|7||Hong Leong Capital|
|8||Lei Shing Hong Capital|
|10||Goldbell Financial Services Pte Ltd||11||Aozan Capital|
|12||Pilgrim Partners Asia|
|13||SiS Asset Management Pte Ltd|
|14||EXE Credit Capital Pte Ltd|
|There are multiple dimensions to asset-backed financiers in Singapore. We will review them independently in a separate article. Stay tuned!|
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About The Author
Eric Koh is passionate about helping SMEs grow and has spent years interacting with business owners at OCBC and IFS Capital. He is interested in 70s Rock n Roll, the odd novel and copious amounts of historical trivia.
Connect with him via firstname.lastname@example.org