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Asia Credit Research

Treasury Advisory

Offshore Marine Sector:


Mixed Trends, More Clarity
Wednesday, 27 May 2015
Key Takeaways

1Q15 was the first full quarter that was impacted by spending cuts resulting
from the weak energy market. The quarterly performance and tone of
management would be instructive as to what to expect for the rest of 2015

Revenue and earnings were mixed and varied due to business models. Over
supply, underutilization and weak day rates have left their mark

Credit profile deterioration occurred as expected, but some stability was seen
for the more leveraged players

Interest coverage has deteriorated, but still manageable. Short-term


borrowings trickier for some, but mitigating factors do exist. Liquidity
generation and preservation is now king

Challenging fundamentals to persist through the rest of 2015. Negative


technical factors have pressured the market, exacerbating the situation

2015 sector maturities look manageable, which should be a positive catalyst.


However, looming call dates for the perpetual securities add to uncertainty

Relative performance reinforces SWCHSP18 as one of our top picks

Corporate FX & Structured


Products
Tel: 6349-1888 / 1881
Interest Rate Derivatives
Tel: 6349-1899
Investments & Structured
Products
Tel: 6349-1886
GT Institutional Sales
Tel: 6349-1810

Nick Wong Liang Mian, CFA


+65 6530-7348
NickWong@ocbc.com

Issuer
ASL Marine Holdings Ltd
ASL Marine Holdings Ltd
Ezra Holdings Ltd
Ezra Holdings Ltd
Ezra Holdings Ltd
Keppel Corp Ltd
Keppel Corp Ltd
Keppel Corp Ltd
Keppel Corp Ltd
Nam Cheong Ltd
Nam Cheong Ltd
Neptune Orient Lines Ltd
Neptune Orient Lines Ltd
Neptune Orient Lines Ltd
Neptune Orient Lines Ltd
Otto Marine Services Pte Ltd
Pacific Radiance Ltd
Sembcorp Industries Ltd
Sembcorp Industries Ltd
Sembcorp Industries Ltd
Sembcorp Industries Ltd
Swissco Holdings Ltd

MATURITY

Issuer
Ratings

Issue

UW
UW
UW
UW
UW
N
N
N
N
N
N
N
N
N
N
UW
N
N
N
N
N
N

ASLSP 4.75 '17


ASLSP 5.35 '18
EZRASP 5 '15
EZRASP 4.875 '18
EZRASP 8.75 '49c15
KEPSP 3.1 '20
KEPSP 3.145 '22
KEPSP 3.8 '27c22
KEPSP 4 '42
NCLSP 6 '15
NCLSP 5 '17
NOLSP 4.25 '17
NOLSP 4.4 '19c17
NOLSP 4.65 '20c15
NOLSP 4.4 '21c16
OTMLSP 7 '16
PACRA 4.3 '18
SCISP 3.7325 '20
SCISP 3.64 '24
SCISP 4.25 '25
SCISP 5 '49c18
SWCHSP 5.7 '18

Indicative prices from Bloomberg as of 27 May 2015

Maturity
28/03/2017
01/10/2018
07/09/2015
24/04/2018
18/09/2015
12/10/2020
14/02/2022
23/04/2027
07/09/2042
05/11/2015
28/08/2017
26/04/2017
08/11/2019
09/09/2020
22/06/2021
01/08/2016
29/08/2018
09/04/2020
27/05/2024
30/08/2025
21/08/2018
16/04/2018

PX_ASK
YAS_BOND_YLD
Bond
Ask
Ask YTW Rating
Price
99.75
4.891
N
96.00
6.705
N
99.50
6.834
N
90.00
8.862
N
93.00 14.390
N
101.70
2.757 UW
100.65
3.037 UW
102.00
3.471
N
98.00
4.121
N
102.50
0.146
N
102.00
4.054 OW
101.90
3.210 OW
101.50
4.027
N
101.65
4.104 OW
101.00
4.129
N
88.50 19.199 UW
96.50
5.490 OW
104.20
2.801 UW
102.00
3.380 UW
106.00
3.546
N
103.00
4.002
N
92.00
8.912 OW

27 May 2015

Sector Update

A) Cut to the bone


The first quarter of 2015 was when the offshore marine sector felt the full brunt of capital expenditure cuts by
end customers (upstream players such as the oil majors, or national oil companies). It was reported by
1
Bloomberg that of the 119 companies worldwide that guided capex spending for 2015, these companies in
aggregate would spend USD252bn in 2015, a 27% decline relative to 2014. These cuts will directly impact
the revenue of offshore marine players, as well as stunt their order books.
2

Aside from the sheer size of the capex cuts (which would bring spending back to 2010 / 2011 levels) ,
another important consideration would be how quickly the energy market soured and how aggressively
upstream players responded. Companies had less than a quarters time to adjust to the new environment.
One of our coverage companies management commented that though 2008 and 2009 saw a sharp decline
in crude oil prices as well their business was only affected in 2010 and 2011. This time it is different, with
even firm projects being delayed or postponed indefinitely. They have also mentioned that even required
maintenance capex are being delayed by customers.
Insights could be obtained by analysing the recent quarters performance of the offshore marine players
under our coverage, to understand how these firms have coped, to consider forward-looking management
colour and to pre-empt trends that may occur. In this report, we will be touching on Keppel Corp (KEP),
Sembcorp Industries (SCI), Otto Marine (OTML), Pacific Radiance (PACRA), Swissco (SWCH), ASL
Marine (ASL), Nam Cheong (NCL) and Ezra (EZRA).

B) Revenue and earnings: A mixed bag


Issuer
I) Rig Builders
Keppel Corp Ltd
Sembcorp Industries Ltd
II) OSV Charterers
Otto Marine Services Pte Ltd
Pacific Radiance Ltd
III) Rig Charterers
Swissco Holdings Ltd
IV) Shipyards
ASL Marine Holdings Ltd
Nam Cheong Ltd
V) Offshore EPC Contractors
Ezra Holdings Ltd
Source: OCBC, Company

1Q2015
y/y
Revenue (mn) change

q/q
change

1Q2015 Net
Profit (mn)

y/y
change

q/q
change

2,814.1
2,338.1

-6.1%
-11.0%

28.3%
-12.2%

374.2
187.7

-5.2%
-23.3%

-63.5%
-43.6%

148.1
31.5

91.8%
-24.8%

111.7%
-15.2%

-13.3
1.1

-11.0%
-93.7%

-71.3%
-82.4%

19.1

39.0%

-48.9%

21.9

484.1%

N.M

63.4
326.3

-56.2%
-19.9%

N.M
-37.7%

2.1
39.3

-57.5%
-44.9%

48.3%
-6.7%

302.0
0.5%
-5.9%
4.7 -78.7% -92.2%
*Calendar quarter 1Q2015, except Ezra (quarter ending Feb 2015)

Expectedly, the revenue trend observed for our coverage universe is that of distinct deterioration. In
particular, several firms saw sharp y/y declines in revenue. That said, only the OSV chartering business is
more vulnerable to quarter-to-quarter swings in revenue due to their partial exposure to spot charter rates
(the OSV chartering segment of all the firms under our coverage saw q/q declines). Comparatively, other
business segments such as shipbuilding and EPC recognize revenue based on the percentage-ofcompletion method. This means that revenue can be lumpy from quarter-to-quarter. Things are made further
complicated by coverage companies participating in multiple business segments. For example, SWCH, ASL
and EZRA all have sizable vessel chartering businesses while OTML and EZRA also have shipyards. We
believe that a useful longer-term measure would be the state and trend of their order books (discussed in
later sections). From the earnings front, things are decisively more challenging. Several firms saw sharp
declines in profit, pressured by underutilization as well as margin compression from competition. Some
revenue and earnings highlights regarding our coverage universe will be provided on the next page:
1
2

Bloomberg Energy Cos. Avg. Capex Cut 36% Following Oils Plunge (11/03/15)
OCBC Credit Research Plunge in Oil: Whos Hurting? (06/02/15)

Treasury Research & Strategy

27 May 2015

Sector Update

KEP & SCI: The declines in revenue were driven mainly by KEPs infrastructure division and SCIs
Utilities division rather than by declines in their offshore marine businesses (which were roughly flat y/y).
The declines in their offshore marine order book indicate a more challenging future however. Demand
for newbuild rigs are likely to be tepid given oversupply in the jack-up rig segment as well as weak
energy prices rendering deepwater production uneconomical. Offshore marine margins to remain
pressured, while the weak domestic property market and competitive domestic utility market to pressure
KEPs and SCIs other operating segments. There is also some negative event risk depending on the
outcome of the Petrobras / Sete Brasil situation.

OTML & PACRA: OTMLs revenue surged during the quarter due to its shipyard segment. It generated
USD106mn in external revenue from the segment due to the sale of a vessel. Comparatively, OTML only
generated USD81mn in shipyard revenue for the whole of FY2014. The firm does not disclose its
shipyard order book. OTML and PACRAs OSV chartering segments slumped 27.2% and 25.0% y/y
respectively. In general, we expect the OSV chartering business to remain challenging due to oversupply
in the sector. Underutilization and customers haggling over day rates will pressure margins in the near
future (OTMLs OSV chartering business generated a gross loss during the quarter).

SWCH: As Swissco was the target of a RTO which closed in 2014, 4Q14 was the first quarter which had
restated, consolidated financial statements. As such q/q performance is more useful. Revenue plunged
by almost 50% q/q. The main driver was the lack of maritime services (the ordering of ships to be
configured and sold to end clients) revenue for 1Q15. Only 2 of Swisscos 9 rigs are majority owned by
Swissco and hence consolidated into Swisscos financial statements. The balance rigs are held in JVs or
as associates. As such, half of pre-tax profit was contributed by JVs and associates (the reason why net
profit was higher than revenue). Rig contracts tend to be longer term, but Swissco has 3 rig contracts
expiring through 2H15. Management believes that they should be able to find contracts for these rigs,
though they expect day rates to be ~10% lower due to competitive pressure. As such, we believe that
2H15 will see some earnings pressure when the rigs come off lease.

ASL & NCL: After registering negative revenue in 2QFY15 due to sales reversal (upon order
cancellation), ASL managed to recover to revenues comparable with 1QFY15 (ending September 2014).
However, revenue still declined 56.2% y/y, driven by 84% decline in shipbuilding revenues (most
projects were early stage). This is mitigated by SGD257mn in shipbuilding order book. NCL saw revenue
decline 19.9%. This was driven by fewer vessels delivered in 1Q15 versus 1Q14 (6 versus 7). Order
book remains healthy, seeing only a slight decline q/q. Earnings were mixed for ASL. Gross margin
expanded due in part to a one-off special project under ship repair / conversion. However, shipbuilding
generated losses due to subcontractor overruns. For NCL, though net profit fell 44.9% y/y, gross margin
was actually maintained. The decline in profitability was driven by lack of derivative gains, higher finance
expenses, FX losses and losses from associates. Longer term core profitability looks to be stable.

EZRA: Revenue declines for EZRA were slight, with declines in subsea EPC and OSV chartering offset
by gains from shipbuilding. The subsea divisions decline was due mainly to projects being earlier stage
(hence lower percentage-of-completion revenue recognized). Order book remains healthy, helping to
support revenue over the next 24 months. Earnings plunged over 90% q/q. Gross margin compression
was slight, from 16% (2QFY14) to 14% (2QFY15). This was driven by earlier stage projects for the
subsea division, weakness in the OSV chartering market and change in product mix for the shipbuilding
business. Net profit plunged due to higher financial expenses and lower share of profits from associate
companies (EOL was consolidated from associate to subsidiary from October 2014 onwards).

Treasury Research & Strategy

27 May 2015

Sector Update

C) Credit Profile: Within Expectations


Net Gearing
2013
2014

Issuer
I) Rig Builders
Keppel Corp Ltd
Sembcorp Industries Ltd
II) OSV Charterers
Otto Marine Services Pte Ltd
Pacific Radiance Ltd
III) Rig Charterers
Swissco Holdings Ltd
IV) Shipyards
ASL Marine Holdings Ltd (3QFY15)
Nam Cheong Ltd
V) Offshore EPC Contractors
Ezra Holdings Ltd (2QFY15)
Source: OCBC, Company

1Q15

Net Debt / EBITDA


2013
2014
1Q15

0.11
-0.05

0.11
0.44

0.37
0.51

0.7x
-0.2x

0.7x
2.3x

2.1x
3.4x

1.95
0.60

1.95
0.52

1.97
0.59

N/A
3.7x

39.2x
4.4x

49.7x
5.5x

N/A

0.83

0.70

N/A

10.0x

3.7x

0.92
0.52

1.12
0.42

1.13
0.45

4.7x
2.3x

7.4x
1.7x

9.9x
3.1x

0.98

1.16

1.15

17.6x

9.7x

15.2x

*Calendar quarter 1Q2015, except Ezra (quarter ending Feb 2015)

From a debt-to-EBITDA basis, the credit profile of our coverage universe has deteriorated q/q (with the
exception of SWCH). As seen in the previous section, several companies saw sharp declines in earnings
(with EBITDA pressured as well), which drove the deterioration of the ratio. That said, it should be noted that
quarterly EBITDA numbers can be volatile, particularly for business segments with more lumpy revenues
such as shipyards and EPC. As such, net gearing may be a more useful measure for q/q comparisons.
From a net gearing perspective, companies that are already highly geared entering 1Q15, such as OTML,
ASL and EZRA, have maintained their net gearing levels relatively flat through the quarter. These
companies management are well aware of the challenging environment they are facing, and have strived to
control their leverage profile. Comparatively, firms that had a bit more room on their balance sheets (such as
PACRA, KEP and SCI) saw their leverage creep up through the period. These are for very specific reasons:
KEP spent cash privatizing Keppel Land during the period, both KEP and SCI had working capital and capex
needs due to their Brazil orders, and PACRA had committed capex due to 4 vessel deliveries in the quarter.
SWCH was the sole company that saw net gearing decline decisively during the quarter (gross borrowings
were constant, but cash balance increased due to cash generated by its JVs). It should also be noted that
SCI did a SGD600mn issuance of perpetual securities in mid-May, which would help reduce pro-forma net
gearing to 0.47 (as of end-1Q15, assuming all cash raised is spent).
One area worth monitoring would be contingent liabilities arising from corporate guarantees to associate
companies or JVs (and hence are off balance sheet). These are typically disclosed only in annual reports.
Some are vessel financing that amortizes with the cash flow generated from charters. The usefulness of this
information is limited by the lack of information on the asset side (such as associate / JVs cash balance).

Issuer
Keppel Corp Ltd
Sembcorp Industries Ltd
Otto Marine Services Pte Ltd
Pacific Radiance Ltd
Swissco Holdings Ltd
ASL Marine Holdings Ltd
Nam Cheong Ltd
Ezra Holdings Ltd

Contingent Liabilities
(most recent fiscal year)

adj. Net
Gearing

SGD483.5mn
SGD908.5mn
USD108.5mn
USD48.2mn
*held by JV partner
None disclosed.
None disclosed.
USD95.5mn

0.14
0.57
2.4
0.64
N/A
N/A
N/A
1.24

Source: OCBC, Company

Treasury Research & Strategy

27 May 2015

Sector Update

D) Liquidity Profile: Pulling All Levers


EBITDA / Interest
2013
2014
1Q15

Issuer
I) Rig Builders
Keppel Corp Ltd
Sembcorp Industries Ltd
II) OSV Charterers
Otto Marine Services Pte Ltd
Pacific Radiance Ltd
III) Rig Charterers
Swissco Holdings Ltd
IV) Shipyards
ASL Marine Holdings Ltd (3QFY15)
Nam Cheong Ltd
V) Offshore EPC Contractors
Ezra Holdings Ltd (2QFY15)
Source: OCBC, Company

Cash / Current Borrowings


2013
2014
1Q15

16.9x
10.6x

17.2x
19.6x

18.7x
9.4x

1077%
545%

319%
153%

149%
100%

-0.6x
4.7x

0.4x
5.7x

0.3x
4.2x

20%
122%

18%
196%

16%
168%

N/A

4.5x

4.5x

N/A

54%

75%

9.0x
6.3x

5.3x
5.7x

3.7x
2.7x

35%
150%

28%
144%

30%
124%

1.3x

2.8x

1.9x

34%

35%

34%

*Calendar quarter 1Q2015, except Ezra (quarter ending Feb 2015)

On an interest coverage basis (EBITDA / Interest), with the exception of KEP and SWCH, the other firms
have seen deterioration q/q (again driven mainly by declines in EBITDA). With the exception of OTML, these
issuers are covered at least ~2x for interest service. Though the situation for OTML is challenging, levels are
not far from 2014 levels, and a distinct improvement over 2013.
With regards to the ability of these firms to cover their short-term borrowings (due within 12 months of end1Q15), we can see that OTML, SWCH, ASL and EZRA currently do not have enough cash on their balance
sheets to do so. However, in mitigation, these levels are not radically different from historical levels, and are
driven in part by the business models of these companies. For shipbuilders such as OTML and ASL, parts of
their borrowings are to finance the construction of the vessels, and will be paid down upon the delivery of
these vessels to the client. For their OSV chartering business, their fleet are financed via vessel financing,
which are amortizing (and hence have short-term portions). No doubt the weaker macro environment would
make it more difficult for these issuers to obtain financing, but the feedback from these management is that
as long as the assets are cash flow generating (have contracts, or have firm orders from end clients),
th
financing is still available. An example of this would be how EZRA announced (on 30 January 2015)
securing financing to complete its Lewek Constellation vessel.
That said the liquidity situation for the sector in general remains challenging. Firms are not taking any
chances. During the previous earnings season (February 2015), some of the management we met were still
bullish, seeing the downturn as potential opportunity to pick up cheap assets. Now, the tone is uniformly
conservative, with the focus on cash generation and liquidity preservation. Operating cash flow is also
generated from squeezing working capital (such as chasing receivables and delaying payables). These are
non-recurring sources of cash, and can be expected to reverse in the future. SG&A expenses are also
aggressively being reduced. The order book / backlog of these issuers also provide some future revenue
support. In aggregate, although there has been declines, their order books still remain healthy:

Issuer

Order Book (mn)


% of Sales
2014
1Q15
2014
1Q15
Keppel Corp Ltd*
12,500
11,300
146%
132%
Sembcorp Marine*
11,400
10,600
195%
182%
Otto Marine Services Pte Ltd
495
324
139%
91%
ASL Marine Holdings Ltd (3QFY15)
330
315
65%
62%
Nam Cheong Ltd
1,700
1,600
88%
83%
Ezra Holdings Ltd (2QFY15)
2,400
2,300
161%
155%
Source: OCBC, Company
*PACRA and SWCH do not disclose their order book. KEP and SCI % of
Offshore Marine sales only. % of sales refers to most recent fiscal year total sales.

Treasury Research & Strategy

27 May 2015

Sector Update

E) Is 2Q15 the bottom?


Some of the management we met indicated that 2Q15 may be the bottom. The overall sentiment was that
upstream players have cut too fast and too hard, in a knee-jerk reaction to the sharp decline in oil prices over
4Q14. Since then, oil prices have recovered partially from below USD50 in mid-January to the mid USD60s
currently (for Brent). Our house view continues to be USD75/bbl for Brent by year end. The demand side of
oil continues to paint a positive picture.
Already, some subsea EPC players have started seeing clients come back to provide tenders for
development and maintenance work. Specific vessels / rigs, such as accommodation rigs continue to see
stable demand. Specialized vessels such as EZRAs Lewek Constellation continue to see firm demand and
rates. Some clients are even trying to lock-in long-term charters for OSVs at current depressed rates (our
coverage companies are not quite desperate enough to take the bait).
That said, we believe that the market is likely to remain weak for the offshore marine sector through 2015.
There is still too much supply being worked through. The hardest hit part of the market would be the OSV
chartering business, which is more exposed to spot and short-term charters. Some vessel types, such as the
smaller utility vessels, are particularly vulnerable. On the jack-up rig side, due to speculative newbuilds from
China, day rates have also fallen sharply. Already, we have seen Transocean delay its order of 5 jack-up rigs
3
from KEP by six months, and also extended the delivery dates for each of these rigs . In aggregate, even if
demand has stabilized, the low utilization will pressure day rates for the rest of the year, if not longer.

F) Looming Events / Catalysts:


Capital markets continue to be challenging for the oil & gas / offshore marine sector. The sector saw 24
issues (out of 127 SGD-denominated non-financial corporate bonds) in 2014, but only saw 4 deals issued
YTD. These were PT Logindo Samudramakmur (backed by a SBLC from UOB), Indus Gas, PT Medco
Energi and SCI. The sector saw many negative technicals, such as first-time issuers, lower liquidity due to
smaller size issues, and lack of coverage from research. This exacerbated the fundamental headwinds faced
nd
by the sector. As most bonds issued had 2 3 year tenures, we see looming maturities starting from the 2
half of this year onwards:

Issuer Name
Swiber Holdings Ltd
Ezra Holdings Ltd
Nam Cheong Ltd
Ezra Holdings Ltd
Vallianz Holdings Ltd
Swiber Holdings Ltd
Swiber Holdings Ltd
Otto Marine Services Pte Ltd
Perisai Capital Labuan Inc
Swiber Holdings Ltd
United Energy Financing Bermuda Ltd
Marco Polo Marine Ltd
Vallianz Holdings Ltd
Miclyn Express Offshore Ltd

Ticker Cpn Maturity Date


SWIBSP
6.25 08/06/2015
EZRASP
5 07/09/2015
NCLSP
6 05/11/2015
EZRASP
4.75 21/03/2016
VALZSP
7.2 01/04/2016
SWIBSP 5.125 06/06/2016
SWIBSP
7 06/07/2016
OTMLSP
7 01/08/2016
PPTMK 6.875 03/10/2016
SWIBSP
5.55 10/10/2016
UNIENE
6.85 17/10/2016
MPMSP
5.75 18/10/2016
VALZSP
7.25 22/11/2016
MIOAU
8.5 12/12/2016

Source: OCBC, Bloomberg


th

The first to test the market would be Swiber Holdings (SWIB) SGD95mn in bonds maturity on the 8 of
June, about two weeks from now. Though we do not cover SWIB, it had USD129.2mn in cash as of the end
of 1Q15 and should be able to redeem the bond. That said, SWIB is one of the more highly leveraged
companies in the sector, with a net gearing of 1.45 (end-1Q15). Its ability to meet its bond maturity would be
a positive catalyst for the sector. The next bond maturity would be EZRA, with a SGD$225mn bond maturing
3

Transocean Earnings Q4 2014 Earnings Call (26/02/15)

Treasury Research & Strategy

27 May 2015

Sector Update

th

on 7 September 2015. EZRA had USD193.0mn in cash as of the end of February 2015 (2QFY15) and
th
should be able to meet its bond maturity. Finally, NCL has a SGD110mn bond maturity on the 5 of
November 2015, and should be able to redeem with its MYR862.6mn in cash (end-1Q15). The successful
redemption of these bonds through 2015 should improve sentiments for the sector.
The picture is made murkier by the looming call dates of SWIB and EZRAs perpetual securities. SWIB has
th
about SGD80mn in perpetual securities reaching its first call date on the 25 of September 2015. EZRA has
th
SGD150mn in perpetual securities reaching first call on the 18 September 2015. If the issuers fail to call
their perpetual securities, they will face a step-up of 300bps, which would drive the coupons to the low
double digits. Both EZRA and SWIBs management have recently publically committed towards calling their
4
perpetual securities . EZRAs management has mentioned considering equity and equity-linked alternatives
to meet their refinancing needs in September. It is worth noting that Ezion Holdings (EZI) will be the first to
th
face the call on its SGD125mn in perpetual securities on the 14 of September 2015. We will reserve our
judgment till after 2Q15 results before taking a stance on how the perpetual securities will be resolved.

G) Conclusion and Recommendations:


In this report, we have reviewed the 1Q15 performance of our offshore marine coverage. Revenues and
earnings were under pressure, with the slump in end customer demand, lower utilization of fleets and
declines in day rates. Performance varied across the sector, depending in part due to the business segments
which the issuers have exposure to. Though there has been some deterioration in credit profiles across
these issuers, it was largely driven by issuers that had more room on their balance sheets. The more
leveraged players held their net gearing levels stable q/q. Interest coverage ratios have worsened, but are
still broadly manageable in the interim. For issuers that were unable to cover current borrowings with cash,
there are some mitigating factors, including order book support. It is crunch time for these issuers, with cash
generation and preservation the priority. We believe that the sector will remain challenging for the rest of the
year given the lag time needed to work through the supply glut in various parts of the sector. Though
negative technical factors have pressured issues in the sector, we believe that bond maturities due through
the rest of the year will be met. This would be a near-term catalyst that could lift the sector. That said, there
are looming call dates for sizable perpetual securities from September onwards, and this remains a wildcard.
We have last upgraded the SWCHSP18s from Neutral to Overweight in our Monthly Credit View (05/05/15),
due to the sharp fall in price. We believe that the fall was unjustified, given the issuers stronger credit profile
relative to peers. Since then, SWCH has released its 1Q15 earnings report (12/05/15), which only reinforces
our view that SWCH is mispriced. It is the only issuer to have seen a decline in leverage across our
offshore marine coverage on a q/q basis. Though the issuer is indeed facing contract expiries from 2H15
onwards for some of its rigs, it would be facing these expirations from a relative position of strength, having
buffer to deleverage the firm since the end of 2014. The bond still currently trades at an offer of 92c, or
almost 730bps above swaps. This is comparable to the 725bps and 754bps that EZRA and SWIB are trading
at despite a decisively stronger balance sheet. As such, the SWCHSP18 remains one of our top picks.

Bloomberg: Singapore Perpetual Bond Investors Hope Never Means Three Years (05/05/15)

Treasury Research & Strategy

27 May 2015

Sector Update

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believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is
not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or
completeness, and you should not act on it without first independently verifying its contents. The securities/instruments
mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this
report is subject to change without notice. We have not given any consideration to and we have not made any investigation
of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly,
no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as
a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover
a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on
personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific
advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any
investment product taking into account your specific investment objectives, financial situation or particular needs before you
make a commitment to purchase the investment product.
OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in
this publication and together with their respective directors and officers, may have or take positions in the
securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or
their clients, and may also perform or seek to perform broking and other investment or securities-related services for the
corporations whose securities are mentioned in this publication as well as other parties generally.
Co.Reg.no.:193200032W

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