KUALA LUMPUR: Icon Offshore Bhd’s debt restructuring under the Corporate Debt Restructuring Committee scheme is progressing as scheduled, with an agreement expected to be signed with lenders as early as this month.

“The signing [could] possibly [happen] within one month. We do not foresee any major hurdles,” the group’s acting chief executive officer (CEO), Captain Hassan Ali (pic), told The Edge Financial Daily in an interview.

As at end-March, Icon had short- and long-term borrowings of RM601.08 million and RM47.63 million respectively, against cash equivalents of RM47.37 million, and non-current assets totalling RM618.79 million.

Accumulated losses stood at RM854.43 million.

Details are scarce about the requirements set by lenders, but the restructuring would help push down Icon’s annual interest costs from the current RM40 million and help achieve break even in the financial year ending Dec 31, 2020 (FY20).

The next priority for the loss-making offshore support vessel (OSV) operator is to secure jobs for four of its dry-docked vessels, in order to ride on recovering rates.

According to Hassan, spot daily charter rates (DCRs) are recovering from their low average of 80 US cents per brake horsepower (bhp) during the downturn to about 20 US cents/bhp currently, although still with a 20% gap from the high of US$1.50/bhp during the 2013 oil boom.

It is understood that spot rates are already higher than existing long-term contracts such as the Integrated Logistics Control Tower projects, which require around 120 vessels nationwide.

“We have done what we can to reduce our overhead ... [The spot market] is where we can capitalise on the rates, which are creeping up, to bring our average charter rates higher,” he said. “Of course, we want to secure long-term contracts with better rates.”

‘Financial muscle lacking to capture incoming charters’

The reason for rising spot DCRs is because not enough vessels are in operation. Many local OSVs are financially incapable to restart their vessels from lay-up — essentially out of service — to capture the recent inflow of jobs.

“What we are seeing is that, many of the vessels that are laid up may not come back and could eventually be sold [elsewhere] or scrapped ... so foreign vessels are coming in [to cater to the gap],” Hassan said.

National oil company Petronas’ latest activity outlook report underlined that the local upstream oil and gas industry would require at least 105 anchor handling tug supply vessels, 49 supply vessels and 80 fast crew boats in 2019 alone, with the numbers largely unchanged for 2020-2021.

It is understood that priority is given to Malaysian vessels backed by local financing. Petronas has also mediated between vessel owners, banks, and shipyards — where it is proposed that banks lend the initial capital needed for the maintenance of vessels that have obtained contracts.

Still, it is estimated that there were 85 OSVs in Malaysian waters laid up at the end of 2018, Hassan shared.

“I am not sure how many have been re-activated, but knowing the situation, not many companies have the [financial] capacity to,” he said.

Icon, too, needs to prioritise its cash from operations on finance costs and working capital, before making a commercial decision on whether to reactivate its laid-up vessels.

The group owns 31 vessels, with seven on long-term charter with an order book of around RM557 million. Six — including the four dry-docked vessels — are set for the spot market. Eight are still laid up, including one that is being reactivated at press time, and another which may have a new owner from India soon.

But the average age of Icon’s laid up vessels is at around 11 years, making it less commercially attractive to reactivate at current charter rates.

The group, said Hassan, is keeping its options open.

“If the price is good, we can sell the older ships and reinvest on newer vessels. For example in China there are still many that are near completion but not delivered [due to the previous downturn],” he said.

“If we have more resources, and if the market is still hot, then we can reactivate more [vessels],” he added

Hassan was, however, non-committal when asked whether the debt restructuring will remove the need of a cash call as the group prepares for the upturn.

“Certain [moves forward] will be tied to the debt restructuring. To move forward, you need capital. It will be good to have something that will give you a good buffer, not [necessarily] a war chest,” he mulled.

Call it bad timing, but Icon was listed on Bursa Malaysia just before the oil price decline in 2014. Since then, the highly-geared company had lost RM2.08 billion in market capitalisation. It’s still a long way for Icon to improve its balance sheet and see its share price recover from eight sen presently to its listing price of RM1.85, but the debt restructuring is a re-start.