SINGAPORE (THE BUSINESS TIMES) - Talks have been ongoing between Keppel Offshore & Marine (KOM) and Oslo-listed Borr Drilling, with the yard group seeking to offload six jack-up rigs for up to US$960 million (S$1.26 billion) to the Norwegian offshore drilling contractor.
The Business Times understands that Borr Drilling has raised its latest offer for KOM's jack-up rigs, but it is unclear whether this matches the asking price from the yard group.
The rig-builder is said to be after an average unit price of US$150 million to US$160 million for a KFELS B Class jack-up.
Industry sources suggest the indicative price range would have capped impairments and write-offs within an acceptable threshold to the yard group and its parent.
KOM and Borr Drilling are believed to have been in talks for the sale and resale of six jack-ups, including one that the yard group has been building without any contract in hand. The other five jack-ups that were under consideration were originally constructed for Grupo R, Clearwater Capital, Falcon Energy Group's (FEG) unit, FTS Derricks and Fecon, according to sources.
Brokers indicated that the jack-up rig commissioned by private equity player Clearwater Capital has been offered for resale for some time now. KOM has deferred the delivery of the other jack-up rigs placed by FTS Derricks, Grupo R and Fecon at the request of these clients.
Talks between Borr Drilling and KOM first started last year for these jack-ups although a deal could not be reached mainly because the two parties could not agree on the pricing.
Ian Craven of Icarus Consulting said: "It is believed that KOM would not match the discounts offered by PPL (Sembcorp Marine)."
Borr Drilling went on to sign a US$1.3 billion deal with SembMarine for nine jack-ups. Six of these rigs were originally contracted by Oro Negro, Perisai Petroleum and Marco Polo Marine. The average unit price for the nine rigs works out to less than US$145 million.
The rig-building contracts KOM had signed for these jack-up rigs called for customers to pay up at least 20 per cent of the contracted values as upfront deposits.
Shipping data firm Vesselsvalue (VV) noted on Jan 9 that Fecon's KFELS B Class jack-ups, previously contracted to KOM at above US$200 million apiece, are now valued at just above US$170 million each. VV's valuation took into consideration drastically lower offshore drilling demand and a supply glut stemming from over-investments in rig-building before the market crashed in 2014.
KOM has maintained so far that it has been adequately compensated for deferment of rig deliveries. The yard group could well grant its clients further deferment for the deliveries of these jack-ups - now said to number above a dozen - if it could not get good enough offers in the resale market.
However, as part of a large conglomerate, KOM also has one further option on the table for the jack-up rigs on its order book: It can choose to extend financing to clients in favour of delivering rigs earlier than later.
A Keppel spokesman, citing the black-out period before the release of its Q4 financial results, declined comment. Keppel Corp is due to announce its full-year financial results on Jan 25.
BT understands that Keppel Capital has already hooked up with structured finance provider Clifford Capital to potentially extend a sale-and-lease-back arrangement for at least one jack-up contracted by Grupo R.
In a sale and leaseback arrangement, the asset owner, "sells" or offloads the asset from its balance sheet to the financier. The owner then charters back from the financier at agreed rates over a fixed term. The rates typically include a rate of return to the financier. The financier may nominate an asset holding vehicle for the said asset.
The sale-and-lease-back financing for the Grupo R rig is said to have been termed out over a charter exceeding 10 years.
Project financing for the Grupo R jack-up may signal Keppel Capital's first forays into the O&M industry.
But this is not entirely new to Clifford Capital. In 2015, the Temasek-backed structured finance entity acted as the mandated lead arranger for a US$100 million dual-currency senior term facility for Seafox 5, a service and accommodation liftboat constructed at Keppel Fels shipyard in Singapore. Seafox 5 was owned by a 75:25 joint venture between KOM and Seafox International. Clifford Capital declined comment when approached by BT.
Ang Dingli, APAC lead at global information company IHS Markit, considered leasing out the undelivered rigs as an alternative way for the yard to generate cash rather than sell at a discount.
"Realistically, the yard must weigh the pros and cons of doing so from a cashflow and business perspective; that is, the rates it can fetch from leasing then selling the rig later compared to selling the rig now. Cutting losses and moving on may not be a bad thing in some cases," he said.