Sembcorp Marine shares jump on deal to sell 9 rigs for US$1.3b

In the past two months, SembMarine had terminated orders for five rigs with customers Oro Negro and Perisai; each unit was ordered at about US$208 million in 2013, said OCBC analyst Low Pei Han.
In the past two months, SembMarine had terminated orders for five rigs with customers Oro Negro and Perisai; each unit was ordered at about US$208 million in 2013, said OCBC analyst Low Pei Han.PHOTO: SEMBCORP MARINE

SINGAPORE - Sembcorp Marine shares surged 9.5 cents or 5.48 cents to S$1.83 on Monday morning (Oct 9) after it said it will proceed with the sale of nine jackup drilling rigs to Borr Drilling for US$1.3 billion (S$1.77 billion), or US$144 million per rig.

Although the sale will result in a loss of about S$15 million for SembMarine, it improves the rigbuilder's liquidity position.

Borr Drilling will make an upfront down payment of about US$500 million, with the balance of US$800 million to be paid at any time within five years from the respective delivery dates of the rigs.

The nine rigs sold include all six rigs from contracts which had been terminated with its original customers, and three rigs presently under various stages of construction completion.

In the past two months, SembMarine had terminated orders for five rigs with customers Oro Negro and Perisai; each unit was ordered at about US$208 million in 2013, said OCBC analyst Low Pei Han.

Ms Low maintained a buy call on SembMarine with a S$1.98 per share fair value estimate on Monday.

 

In a separate note, DBS analyst Ho Pei Hwa reiterated a buy call on SembMarine with a S$2.30 target price. Ms Ho said: "The deal is a key catalyst for the stock's re-rating. While the consideration (implies) a steep about 30 per cent discount to the original contract value, the 'loss of income' is largely offset by deposits collected and provisions made.

"It also comes with a market-based fee clause that allows SembMarine to share the uplift in rig prices upon delivery. The successful disposal of all six terminated jackup rigs and three newbuild jackup rigs (options which customers failed to exercise) eliminates a key share price overhang on SembMarine."