Keppel, SembMarine settle US$10b contracts standoff with Sete Brasil

Singapore

KEPPEL Corp and Sembcorp Marine (SembMarine) have reached long-awaited settlements with Sete Brasil for drillship and rig-building contracts worth more than US$10 billion that were frozen after their once biggest customer was forced to file for bankruptcy amid a sweeping corruption probe in Brazil.

A Keppel Offshore & Marine (Keppel O&M) unit will take control of four uncompleted rigs and is in discussions to complete the building of two remaining rigs, Keppel said in a bourse filing on Monday.

Keppel had received US$1.3 billion in progress payments from Sete Brasil for the six semi-submersible drilling rig orders, which had a total contract value of about US$4.9 billion, before payments stopped in November 2014. Keppel stopped work on the rigs in late 2015.

The engineering, procurement and construction contracts and related agreements for four rigs entered into with Sete Brasil subsidiaries will be deemed to be amicably terminated, with no penalties, refunds and/or any additional amounts being due to any party.

One of the rigs is 40 per cent completed, with a second 21 per cent done. Work progress on the remaining two is below 10 per cent.

Once the settlement agreement takes effect, Keppel O&M unit Fernvale will take full ownership of the rigs and explore various options to extract the best value from these assets, Keppel said.

For the two remaining rig orders, a total sum of close to US$260 million will be recognised as part of the undisputed debt included in debt-ridden Sete Brasil's court-approved restructuring plan. The amount will be paid to Fernvale proportionately and on equal footing with the other creditors of the Sete Group.

Fernvale is also in discussions with Magni Partners (Bermuda) Ltd on the terms to complete the construction of the two drilling rigs, which are about 92 per cent and 70 per cent completed, respectively, for Sete Brasil units Urca and Frade. Magni Partners' winning bid to purchase four Sete Brasil subsidiaries, including Urca and Frade, was approved at a meeting of Sete Brasil's creditors on Oct 3, said Keppel.

The settlement agreement was also approved at this meeting. Keppel noted that the agreement will only become effective upon the fulfilment of other conditions precedent, including the successful sale of Urca and Frade by Sete Brasil to Magni Partners.

SembMarine has also settled with Sete Brasil seven drillship contracts worth a total US$5.6 billion, the company said in a separate filing on Monday.

It had received a total of S$2.7 billion from Sete Brasil before payments stopped in November 2014.

The contracts will be terminated and the parties will mutually release each other from all claims in relation to the contracts. This is subject to certain prior conditions being fulfilled.

SembMarine will keep five of the seven drillships that are in various stages of completion.

Ownership of the remaining two drillships that are in the most advanced stage of completion will be split between SembMarine and Sete Brasil in proportion to payments already made by Sete Brasil. Sete Brasil has identified a buyer for the two drillships. The buyer is expected to negotiate with SembMarine to enter new contracts to complete the drillships.

Following the settlement, the parties will terminate arbitration proceedings for contract claims that began in April 2016.

SembMarine said it will make further announcements when all the conditions precedent have been fulfilled and the settlement agreement has become effective.

The company made impairment and provisions of S$329 million for the drillship projects during its fiscal year ended Dec 31, 2015.

Keppel Corp shares closed up $0.10 or 1.7 per cent at S$5.91 while SembMarine shares rose S$0.01 or 0.85 per cent to S$1.19 on Monday.