After months of impasse, the uncertainty over Brazil's debt-ridden oil rig supplier Sete Brasil - a top customer of Keppel Offshore & Marine and Sembcorp Marine - could finally be coming to a head.
Sete Brasil's shareholders have agreed to a plan to file for bankruptcy protection, according to a Bloomberg report yesterday. This came after its sole client, Brazil state oil giant Petrobras, failed to present a viable book order as the deadline passed two days ago.
Citing unnamed sources, the report said Sete Brasil shareholders set Wednesday as a deadline for Petrobras to propose a book order that could pay back the capital they had injected into the company. Petrobras, which owns 5 per cent of Sete Brasil, did not vote.
The sources said law firm Sergio Bermudes Advogados, based in Rio de Janeiro, will work on the bankruptcy plans, which may see the company list about 18 billion Brazilian reals (S$6.9 billion) in liabilities.
Sete Brasil, set up in 2011 to build the world's biggest deep-water drilling fleet for Petrobras, fell into deep financial distress after it failed to secure long-term financing amid a sweeping corruption probe involving the state-run oil producer.
It has paid neither Keppel nor SembMarine for orders worth billions since November 2014.
Both Keppel and SembMarine, which have set aside $230 million and $329 million in provisions for the delinquent Sete Brasil projects respectively, told The Straits Times they are aware of the news. But a Keppel spokesman said the group has yet to get any formal notification from Sete Brasil over the bankruptcy protection.
"We are monitoring the situation closely. If Sete Brasil files for bankruptcy protection, the legal process would take time," he said, adding that it would be "premature" to comment now. "The provision of $230 million... for our projects with Sete Brasil remains adequate, for now."
A SembMarine spokesman said: "The group will make the necessary announcements if there is material development."
The rig builder has seven drillships worth US$7 billion (S$9.4 billion) for Sete Brasil on its order books.
Share prices of the two firms were little affected by the news. In fact, Keppel climbed one cent or 0.2 per cent to $6.00, while SembMarine rose two cents or 1.1 per cent to $1.87 - likely driven by optimism over the broader surge in oil prices, said Maybank Kim Eng analyst Yeak Chee Keong.
He said: "The talks over Sete Brasil's bankruptcy did not happen suddenly, so it's not surprising shareholders are not that affected.
"But things are still not all that clear, yet. What shareholders will have to watch for are restructuring plans, which may involve third-party investors - such as banks - taking over its assets and liabilities."
Still, Mr Yeak said it could be difficult roping in such investors given weak market conditions, and that Keppel and SembMarine may have to make further provisions.
He maintains a "sell" call on Keppel, which on Monday posted a 41.5 per cent slide in first-quarter earnings after more project deferments and the suspension of contracts for Sete Brasil, its biggest client.
SembMarine is due to announce its quarterly results on Wednesday next week.
Correction note: An earlier version of this story stated that Keppel set aside $320 million in provisions for the delinquent Sete Brasil projects. The figure is actually $230 million.