Sete Brasil settlement will enable Keppel, SembMarine to move on

Singapore

SINGAPORE's giant rigbuilders Keppel Corp and Sembcorp Marine (SembMarine) are poised to put the pain arising from Brazil's corruption saga behind them after pulling off settlement deals on multi-billion dollar frozen rig jobs.

The settlement with troubled Sete Brasil, which follows four years of overhang that had hurt the rig builders as they made hefty provisions, has now sparked hopes of potential write-backs and order-book upsides.

"Brazilian rigs set free", said a report by CIMB-CGS analyst Lim Siew Khee released shortly after the announcement by Keppel on Monday that wholly-owned Keppel Offshore & Marine will take ownership of four out of six rigs which are 10-40 per cent completed.

This leaves the door open for Keppel to do what it deems fit with the rigs to recoup costs: seek buyers, especially for the nearly half-built ones, or charter them out and enjoy recurring income (once finished, that is) or scrap the ones that have negligible construction work done.

Citi Research said there may or may not be further write-downs for these four rigs depending on realisable values under current market conditions for deep water rigs, adding that it was net neutral to positive on the latest development.

Keppel further announced that under the deal that was inked following a meeting between Sete Brasil and its creditors last week, British company Magni Partners (Magni) emerged as the winning bidder for four drilling rigs, two of which were contracted to Keppel to be built.

The other two, it is widely known, were contracted to SembMarine's Brazilian yards.

In its filing to the stock exchange, SembMarine said Sete Brasil has identified a purchaser for its subsidiaries that own the two drillships but hadn't provided further details. When contacted, a spokesman from SembMarine said the vessels are at an advanced stage of completion.

These four rigs that have landed on Magni Partners reportedly have a 10-year leasing contract with Petrobras at a rate of US$299,000 a day per rig. They were also the last ones standing after over 20 other rigs contracted to be built for Sete Brasil - a rig-owning unit of Petrobras and the Singapore firms' biggest customer - were scrapped after the Brazilian company went under bankruptcy protection amid a sweeping corruption probe and lower oil prices.

Keppel said it will get close to US$260 million for the two rigs under construction as part of the Brazilian firm's court-approved restructuring. According to analysts, this could result in provision write-backs. To date, Keppel has provided S$475 million and collected US$1.3 billion for the six disputed rigs.

On the other hand, SembMarine made S$329 million worth of provisions for the Sete Brasil drill ship contracts in fiscal 2015 which the company's spokesperson said are "currently adequate" when queried by The Business Times.

Separately, Keppel also said it was in talks with Magni Partners to complete the rig jobs which are about 92 per cent and 70 per cent finished.

This could potentially add S$100 million-S$200 million to Keppel's order book as the two jobs were previously removed from the backlog, said Citi Research.

CIMB-CGS's Ms Lim is more upbeat.

Based on the latest transacted contract for a semi-submersible drilling rig in March this year and the original contracted price for Sete Brasil, she said Keppel could add a total of US$166 million-US$316 million of work to complete the vessels.

On a similar basis, she said SembMarine could add around US$102 million to US$190 million for its two drillships.

As at end-June 2019, Keppel's net order book for O&M jobs stood at S$5.5 billion - the highest since 2016 - while SembMarine's orders totalled S$5.27 billion.

The shares of both stalwarts in the offshore and marine space rose amid gains in the broader market as the benchmark Straits Times Index advanced 0.7 per cent on Monday.

Keppel jumped 10 Singapore cents or 1.7 per cent to S$5.91 while SembMarine gained one Singapore cent or 0.9 per cent to S$1.19.