SINGAPORE (THE BUSINESS TIMES) - Offshore group Keppel Fels has terminated a US$425 million (S$567.3 million)contract from Awilco Drilling to build a mid-water drilling rig, parent Keppel Corp said in a Friday night (Dec 4) bourse filing.
Keppel Fels has assessed that the Awilco Drilling unit it signed the contract with will not be able to make its second instalment payment due in March 2021. The parties had entered the contract in March 2019.
This marks the second instance of a contract between Keppel Fels and Awilco being terminated. The first contract, announced in 2018, was also worth US$425 million and involved the construction of a mid-water drilling rig. This contract was axed in June.
In the Friday filing, Keppel Fels said that it issued a notice of termination of the second contract to Awilco and commenced arbitration to enforce its rights against Awilco. It also seeks to retain the US$43 million already paid by Awilco to date, along with reimbursement of Keppel FELS' costs of the project up to termination.
As of the announcement, Keppel Fels does not expect any reversal of revenue recognised in respect of the contract, and no further impairment is expected beyond the assumptions in its latest financials for the half-year ended June.
Separately, Keppel announced in a Saturday filing that another unit, Fels Offshore, has entered a lock-up agreement for a proposed restructuring of offshore vessel player Floatel.
Floatel is 49.92 per cent-owned by Fels Offshore. The lock-up agreement includes an ad hoc group (AHG) of holders of US$400 million (S$533.9 million) worth of Floatel's 9 per cent senior secured first lien (1L) bonds, as well as other consenting 1L bondholders who control over 56 per cent by value of the bonds.
The lock-up agreement will commit Floatel, Keppel, the AHG and any acceding 1L bondholders or holders of the US$75 million worth of Floatel's 12.75 per cent second-lien (2L) bonds to attempt a financial and corporate restructuring of Floatel.
The restructuring is expected to involve a new entity acquiring certain subsidiaries of Floatel that own and operate vessels. This could be carried out through the 1L bondholders enforcing their security over the shares in the bond vessel units.
Other Floatel entities, over which security has been granted to the bank lenders of the firm's US$150 million term loan facility, would remain as subsidiaries of Floatel, unless otherwise directed by the bank lenders.
Debt obligations in the amount of the 1L bonds will be assumed by new company, as well as a portion of debt from the bank vessel facility. The remaining portion of the bank facility, as well as the 2L bonds and a US$244 million subordinated loan from Keppel will remain as liabilities of Floatel.
Through the transactions, the 1L bondholders would receive a cash payment of US$30 million from the new company, which is 7.5 per cent of the current outstanding principal of the 1L bonds.
Keppel would eventually hold about 49.92 per cent of the equity interests in the new company. Floatel is expected to file for provisional liquidation in Bermuda after the acquisitions by the new company.
In its filing, Keppel said that it has entered the lock-up agreement "to facilitate and support the proposed restructuring", but also noted that there is no certainty or assurance that the transaction will proceed as laid out.
It added: "Accordingly, it is premature to speculate on the financial impact of the transaction on the company's investments in Floatel."
But based on an analysis of the present factors, the entry into the lock-up agreement is not expected to result in any further impairment to Keppel's carrying value of Floatel, being S$165.4 million as at end-June.
Shares of Keppel last closed at $5.26 on Friday.