Coastal Oil's liquidation unlikely to impact local banks, trigger O&G contagion: CGS-CIMB

Coastal Oil's liquidation unlikely to impact local banks, trigger O&G contagion: CGS-CIMB

By: 
PC Lee
10/01/19, 12:04 pm

SINGAPORE (Jan 10): CGS-CIMB Securities is maintaining OCBC and UOB at “buy” despite customer Coastal Oil Singapore having gone bust.

The company has outstanding debts of US$354 million, US$29.9 million which is owed to DBS, US$122.7 million to OCBC and US$19.5 million to UOB.

“We think that further widespread deterioration of the O&G sector following Coastal Oil’s liquidation is unlikely,” says CGS-CIMB analyst Andrea Choong.

In the worst-case scenario of incurring full provisions, credit costs could rise by 1-6bp which should not impact non-performing loan (NPL) ratios for the three banks.

Recall that in 2H17, the Singapore banks cleaned up their books with the accelerated recognition of vulnerable oil and gas (O&G) exposures.

At that time, DBS -- with $5.3 billion O&G exposure or 2% of total loans -- was hit the hardest with 109bp of credit costs in 3Q17, while OCBC -- at $12.6 billion or 5% of loans -- and UOB  -- at $10.7 billion or 5% of loans --  were less impacted, booking 30bp and 24bp of allowances in 4Q17.

On Jan 3, DBS seized two of Coastal Oil’s vessels -- Atalanta and Coastal Neptune -- on grounds of US$5.4 million ($7.3 million) and US$3.6 million of mortgage claims; estimated values of the vessels were US$15.6 million and US$7.8 million, respectively.

CGS-CIMB believes that provisions would have been progressively set aside for Coastal Oil given the likely weakening of cashflows leading up to liquidation.

Without taking into account provisions or other collateral, conservatively, DBS’s credit cost would be pushed upwards by 1bp to 24bp in FY19, OCBC by 6bp to 19bp and UOB by 1bp (to 19bp.

“These ‘higher’ levels remain below the average of 27-48bp in FY16 when oil prices were at an all-time low,” says Choong.

DBS’s ratio would rise to 1.57% from 1.56%, OCBC’s to 1.44% from 1.38% and UOB’s to 1.65% from 1.64% since gradually creeping up from 1.0% for DBS and OCBC and 1.4% for UOB in 1Q16.

CGS-CIMB has OCBC and UOB at “add” with target prices of $14.00 or 10.8x FY20F earnings and $31.00 or 11.4x FY20F earnings while DBS gets a “hold” with target price of $27.00 or 10.7x FY20F earnings.

As at 11.53am, shares in OCBC, UOB and DBS are trading at $11.62, $25.74 and $24.36 respectively.

Winners and losers from Singapore's budget as election looms

SINGAPORE (Feb 19): Singapore Finance Minister Heng Swee Keat boosted health-care and military spending, gave tax rebates to citizens and tightened rules on foreign workers ahead of an election that could come as early as this year. Heng announced a new $8 billion support package for seniors in his budget speech on Monday, as well as measures to help local businesses adopt new technologies. The expansionary fiscal plan will push the overall budget deficit to 0.7% of gross domestic product in the year ending March 2020, from a revised surplus of 0.4% this year. The finance minister opened....
Read More >>

Sasseur REIT FY18 DPU exceeds IPO forecast by 12.6%

SINGAPORE (Feb 18): The manager of Sasseur REIT announced a 4Q18 DPU of 1.999 cents, 28.1% higher than forecast. This also brings 2H18 DPU to 3.541 cents and FY18 DPU to a total of 5.128 cents. Sasseur REIT offers investors the unique opportunity to invest in the fast-growing retail outlet mall sector in China through its initial portfolio of four quality retail outlet mall assets. 4Q18 distributable income came in at $23.6 million, 28.1% higher than forecast while EMA rental income came in 1.6% higher than forecast at $31.2 million. Based on the Feb 18 closing unit price of $0.71,....
Read More >>

DBS chief sounds cautious note, but expects modest growth this year

SINGAPORE (Feb 18): Looking to the future, DBS CEO Piyush Gupta sounded a cautious note. For one, mortgage bookings have fallen by 30% to 40% since additional cooling measures were announced in July last year, he said. However, loan growth should continue and is likely to come from the corporate sector. See also: DBS reports 8% rise in 4Q earnings to $1.32 bil; brings FY18 earnings to new record high “We guided for mid-single digit loan growth and we are keeping to this loan growth estimate. I anticipate we will still see choppy markets and macro-economic slowdown,” Gupta says. Among....
Read More >>