Sembcorp Marine stock slumped nearly 4.9 per cent yesterday after news that one of its major clients got the nod to file for bankruptcy.
The move by Sete Brasil has sparked concerns over whether the rigbuilder may have to make further provisions for outstanding contracts.
The stock fell nine cents to $1.75, after rallying 19 per cent to a two-week high of $1.87 on Thursday.
Sete Brasil's shareholders agreed to a plan to file for judicial recovery last week, prompting SembMarine to commence arbitration proceedings against the Brazilian firm's various subsidiaries. Sete Brasil has not paid SembMarine for orders worth billions since November 2014.
"Given the complexity of the situation and the various stakeholders involved, we expect this to be a long-drawn-out process," OCBC Investment Research said.
The rig builder has seven drillships worth US$7 billion (S$9.5 billion) on its order books for Sete Brasil. SembMarine has said the $329 million provisions it made in the fourth quarter last year for these contracts are sufficient.
DBS Group Research said it believes the recent rally in rig builders is "unwarranted amid all the uncertainties in Brazil and the oil market".
More bad news came yesterday when Marco Polo Marine (MPM), another SembMarine client, managed to obtain a stay of legal proceedings on a dispute over a US$214.3 million project. The case is going to arbitration.
The stay order means SembMarine unit PPL Shipyard cannot continue further with court proceedings to try to force MPM to fulfil its obligations as guarantor of the contract. PPL served a contract termination notice on MPM's unit, Marco Polo Drilling, after it failed to make a second payment of US$21.43 million by a Nov 30 deadline.
MPM said it and its unit are not under any obligation to make the payments claimed by PPL for a rig it had built that was allegedly riddled with defects.
DBS said it maintains a "cautious stance on rig orders, which will likely lag an oil price recovery. We need oil prices to recover to sustainable levels, pushing up rig demand, utilisation and charter rates to incentivise rig operators to place orders. Meanwhile, we may see more deferments and cancellations in 2016".
"New order wins for Singapore rig builders dwindled from $9 billion in 2014 to $5 billion last year. Keppel won its first new order this year while SembMarine has yet to secure any so far this year," it said.