Credits: Unsplash
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.
Reason 1 - Negative Sentiments Abound
Reason 2 - Non-Performing Loans in the O&G/Marine Industry
Reason 3 - Multiple Layers Before Payments Reach SMEs
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.
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 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% to 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 by 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.
Lendingpot operates a FREE business loan marketplace that connects SMEs to multiple lenders with only one application. These are only 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.
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.