Sembcorp Marine shares sink to 6-year low

Marco Polo Marine's dry docks in Batam, Indonesia. The company is mired in a dispute with Sembcorp Marine over a rig construction contract.
Marco Polo Marine's dry docks in Batam, Indonesia. The company is mired in a dispute with Sembcorp Marine over a rig construction contract.PHOTO: MARCO POLO MARINE

Rig-builder expects first quarterly loss since 2003 and discloses suit against another firm

Sembcorp Marine shares slumped to their lowest level in more than six years yesterday after the company said it expected to post its first quarterly loss since 2003.

The stock closed down nine cents or 4.37 per cent at $1.97.

SembMarine also disclosed that its PPL Shipyard unit had "commenced an action" against Marco Polo Marine in the Singapore High Court.

In response, Marco Polo claimed there was no basis for PPL to initiate legal action.

The two parties are in a dispute over a US$214.3 million (S$301.8 million) rig construction contract.

On Nov 17, Marco Polo said it had issued PPL a notice of contract termination and was seeking a refund of a payment of about US$21.4 million. It cited defects on the rig as one of "various factors" for terminating the contract.

Then, on Nov 25, SembMarine said Marco Polo was in "repudiatory breach" of contract and that the purported termination "is wrongful and without any justification whatsoever".

It also said the rig, due to have been delivered last Monday, was "more than 98 per cent" completed when Marco Polo terminated the order. SembMarine, in a Singapore Exchange announcement on Tuesday, said it had served a contract termination notice on Marco Polo Drilling after it had failed to make payment. SembMarine said Marco Polo Drilling had not paid a second amount of about US$21.4 million - 10 per cent of the rig construction contract - by Nov 30, as agreed.

The payment was initially due on Feb 26 last year but had been deferred, SembMarine said.

Marco Polo, in an announcement early yesterday, said its unit terminated the rig contract on Nov 17 because PPL did not comply with "material contractual obligations", as well as other reasons.

It added that it was not under any obligation to make the payments claimed under the construction contract.

SembMarine also announced on Tuesday that it may post a net loss for this quarter along with a "significant decline" in net profit for the full year owing to the challenging operating environment as well as to customers deferring or looking to defer rig orders.

Maybank Kim Eng reiterated its sell call on SembMarine in a research note yesterday and assigned the stock a target price of $1.75.

Expected weak order wins, cancellation risks and other unresolved payment issues would likely weigh on the stock, it said. SembMarine may also have to set aside significant provisions relating to the disputed jack-up rig to cover legal costs, impairment losses and refunds to Marco Polo, said Maybank Kim Eng.

And an OCBC research note said there was talk that another company, Seadrill, may be "re-evaluating" a US$568 million semi-submersible rig that it ordered in April 2012.

OCBC maintained its sell call on the stock and changed its estimate of SembMarine's value from $2 to $1.79.

A version of this article appeared in the print edition of The Straits Times on December 03, 2015, with the headline 'Sembcorp Marine shares sink to 6-year low'. Print Edition | Subscribe