Siem Offshore Offers Bleak Industry Outlook Before Bondholder Meeting
Siem Offshore offered a bleak outlook for the offshore industry as it reported its current financial situations. Seven years into a downturn in the offshore sector, many of the companies continue to struggle forecasting that only a consolidation and reorganization of the industry will restore its performance.
Confronted with the long-term collapse in oil prices compounded by the effects of the COVID-19 pandemic, many of the companies have buckled under the financial pressure. There have been several high-profile bankruptcies in the sector with analysts expecting additional challenges in the future. Solstad Offshore, for example, just completed a financial restructuring while Hermitage Offshore succumb to the pressures filing bankruptcy and recently auctioning off its fleet.
Siem which operates a fleet consists of 35 vessels, including anchor handling tug supply vessels, platform supply vessels, support vessels, and offshore subsea construction vessels, said that it sees great uncertainties on exploration, offshore field developments, and subsea maintenance as campaigns are being canceled or postponed.
While they reported that they have been able to maintain a high level of utilization throughout the extended downturn, short-term they said the “coming winter season will most likely be more challenging than ever for our fleet.” They added that demand for offshore service vessels is not expected to increase in the medium term. ”We expect an increase in the number of vessels from the global fleet being put into lay-up for the winter period.”
“We continue to believe that consolidation among vessel owners is one of the few measures that can effectively contribute to an improved market balance,” Siem said in its financial report. “However, even with industry consolidations, it will be difficult to achieve sustainable market rates in the medium term.”
Among the challenges they cited in the industry are banks that are financing multiple shipowners who are in direct competition with each other. Siem is calling on the banks to “take an active role working with the shipowners to create solutions through practical and viable consolidations with the ambition to build a sustainable commercial platform. Only through such measures can revenues be increased, operating costs be reduced, and rational long-term plans created.”
Several shipowners continue to accept contract terms with unacceptable risk and unsustainable rates, just to avoid lay-up they said in their analysis of the market. These are contract terms with high risk for low return, and at the same time creates an unhealthy market precedent for the future said Siem.
Reporting on its business activity, the company said that activity had been better than expected in the third quarter for all segments, but that day rates have been low. They said the exception was a few small peaks in the spot market for the AHTS segment where the medium and long-term contracts are almost non-existent.
Discussing the company’s current financial position, Siem continued to say, “there are uncertainties related to the going-concern status due to the current contractual arrangements with the financing banks, the bondholders and other unsecured lenders.”
The Company had already entered into a standstill agreement with its secured lenders in Europe and Norway for the period from May 29, 2020 until April 30, 2021, and tomorrow, October 30 it will hold a meeting with its bondholders. Siem’s unsecured bond matures October 30, 2020, and the waiver on certain financial covenants in the two unsecured bonds expires is also due to expire. At the meeting, the company is asking bondholders to enter into a standstill agreement, including deferral and suspension of principal and interest payments and waiver of financial covenants until December 31, 2020.
The Company has ongoing discussions for a restructuring proposal on a five-year business plan that includes both adjusting debt leverage and debt service. The restructuring proposal also proposes that part of the existing debt is converted to equity, which will lead to new shares being issued and existing shareholders being diluted.