Keppel associate Floatel to review business plan after rival Prosafe books huge fleet impairment

Floatel had based the calculation of its vessels' VIU on a long-term forecast until the end of each vessel's useful life.
Floatel had based the calculation of its vessels' VIU on a long-term forecast until the end of each vessel's useful life.PHOTO: AFP

SINGAPORE (THE BUSINESS TIMES) - Keppel Corporation on Monday (June 1) said that associate company Floatel International will conduct an independent review of its business plan, which may include a review and update of the assumptions used in the impairment assessment of its vessels.

The move comes after major Floatel competitor Prosafe adopted different assumptions that resulted in a US$810.5 million (S$1.14 billion) impairment to the book value of its vessels. This was following a reassessment of the market outlook and assumptions used in calculating its vessels' valuation-in-use (VIU), disclosed in Prosafe's first-quarter results released on May 26.

Prosafe's assumptions were "significantly different" from Floatel's assumptions, which led to the company recognising an impairment of US$30.3 million to the book value of its vessels.

Floatel had based the calculation of its vessels' VIU on a long-term forecast until the end of each vessel's useful life. It also made certain assumptions in respect of the charter rates, utilisation, operating expenses, capital expenditures and discount rate of its vessels.

In light of Prosafe's first-quarter results, Keppel requested Floatel to perform the independent review of the assumptions used in conducting its impairment assessment, with a focus on the reasonableness of market outlook assumptions and the parameters used in the valuation of its vessels.

Keppel previously disclosed on Feb 23 that no further impairment was required on the carrying value of its investments in Floatel, which amounted to around $477 million as at Dec 31, 2019.

This amount had taken into account the company's $51 million share of loss in Floatel, including the impairment losses recognised by Floatel on its vessels, as well as a fair-value loss of around $11 million regarding Keppel's investment in Floatel preference shares.

FELS Offshore, a wholly-owned subsidiary of Keppel's Offshore & Marine unit, owns a 49.92 per cent stake in Floatel.

Keppel shares closed at $5.91 on Friday, down $0.06 or 1 per cent.