International Business & Economy DBS helped sell junk Swiber bonds

DBS helped sell junk Swiber bonds

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By: 永久浪客/Forever Vagabond
Last month, public listed company Swiber Holding stunned the market by seeking to be wound up. then switched tack to place itself under judicial management bewildering the public.

Within a period of 6 weeks from late May to mid-July, Swiber essentially “imploded”, as acknowledged by DBS CEO Gupta (https://theindependent.sg.sg/highest-paid-dbs-ceo-gupta-cant-see-swibers-problems).

As of July, DBS’ exposure to Swiber rose by some $70 million to a total of $721 million. DBS has set aside $400 million of allowances for its exposure to Swiber. Of this, DBS drew down $250 million from its own general allowance reserves, a fund that banks have to set aside for rainy days, while took a charge of $150 million.

But Mr Gupta did not think that he was at fault for not spotting Swiber’s troubles earlier. He defended himself at a DBS press conference, “This thing (implosion of Swiber) unravelled between late May and mid-July. So when people say you should have known, none of the indicators showed it.”

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Mr Gupta also defended his decision to extend additional loans to the company when it was already on shaky ground. One of the reasons is because Mr Gupta had believed that a supposedly new investment of $200 million from a London-based private equity firm would come. But when the investment was “delayed”, DBS gave Swiber additional loans to pay off its bond redemption due in June and July. By then, Swiber was in serious trouble cause no investment was coming from the London-based private equity firm.

DBS sold Swiber bonds to public

Going through the company announcements in SGX, it was revealed that in 2014, DBS helped sell Swiber bonds to the public on 3 occasions. In 2 of the deals, DBS was the sole lead underwriter of Swiber bonds:

1. In Apr 2014, DBS was the sole lead manager and bookrunner for Swiber’s 5.55% fixed rate notes:
Issue Size: S$100 million
Issue Price: 100% of the principal amount of the Notes
Interest: 5.55%per annum payable semi-annually in arrear
Maturity Date: 10 October 2016

2. In Jun 2014, DBS again was the sole lead manager and bookrunner for Swiber’s 5.125% fixed rate notes:
Issue Size: S$130 million
Issue Price: 100% of the principal amount of the Notes
Interest: 5.125% per annum payable semi-annually in arrear
Maturity Date: 6 June 2016

3. In Sep 2014, DBS together with 3 other banks were the joint lead managers and joint bookrunners for Swiber’s 7.75% fixed rate notes:
Issue Size: CNY450,000,000
Issue Price: 100% of the principal amount of the Notes
Interest: 7.75% per annum payable semi-annually in arrear
Maturity Date: 18 September 2017

For Swiber’s 5.125% fixed rate notes which matured on 6 June, it was DBS itself which gave further loans to Swiber for it to redeem the notes.

But in the case of Swiber’s 5.55% (S$100 million) and 7.75% (CNY450 million) fixed rate notes, which would mature in Oct 2016 and Sep 2017 respectively, it’s unlikely that the bond holders would be able to get back their full principals since Swiber is now overhanging with mountains of debts and is placed under judicial management. The only hope is for a white knight to come along to save Swiber. As such, the existing unredeemed notes held by bond holders are essentially of junk status.

Minibond Saga

This is not the first time DBS is linked to junk bonds. In 2007, it sold toxic Lehman-linked notes known as ‘DBS High Notes 5’ to the public. Hundreds of millions of dollars were wiped out when Lehman Brothers collapsed.

All bought the ‘DBS High Notes 5’ were affected. ST reported some of the ordeals the investors had to go through (“DBS ‘High Notes 5’ Investors:They pumped in life savings and now feel cheated”, 21 Sep 2008).

Madam Evon Chin invested $75,000 in ‘DBS High Notes 5’ told ST, “I was eating my lunch when my husband called. I started choking on my food. My face was so red, my colleague had to thump my back.” Her husband had told her their investment – from savings over the last 10 years – might now be wiped out. Worried, she took two days of urgent leave, determined to seek an explanation from the bank.

“We felt swindled. We were told this was a low-risk investment,” she added. “I’ve never lost so much, not even when I was investing in shares. This will be a serious blow to our nest egg. Will I really have enough to see my children through their education?”

“Now I can forget about my wish to have a third kid. This is really the saddest thing,” she said.

Another investor, retiree Tham Wai Wah, 60, also felt ‘cheated’. She had trusted the DBS relationship manager who had explained to her that the High Notes 5 product was ‘very safe’.

“I told them I’m a conservative investor and that this was my CPF money,” Mdm Tham said. She had put in $125,000 from her CPF savings.

“This is our fall-back, our cushion for old age. How can I accept that now I might have zero returns? What if I have any major illness in the next 20 years?” she asked. As a result of her loss, she was planning to downgrade from her 5-room to a smaller flat when her other savings ran out.

Yet another investor Carene Tan, 44, angrily said, “I was so upset. It’s not going to affect my livelihood now because I still have a job, but it’s like having to work half a year for free.” She had invested $25,000 which she intended to use for her son’s education. She was planning to send her son abroad for further studies.

The ‘DBS High Notes 5’ were sold to public when American Jackson Peter Tai was DBS CEO.

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