Sembcorp Marine shares fell 1.5 cents or 0.85 per cent to $1.745 yesterday after announcing that its rig-building unit has terminated contracts with Mexico's Oro Negro for the construction of three jack-up rigs.
The rigs have been technically accepted by Oro Negro but delivery has been deferred, SembMarine said.
These high-specification rigs were priced at about US$211 million (S$288 million) each in 2012 and 2013, said DBS analyst Ho Pei Hwa.
But she expects the impact on SembMarine's bottom line to be minimal: "Based on accounting practices, SembMarine will most likely reverse the revenue previously recognised following the contract terminations.
"We believe the likelihood of further profit reversals resulting from the cancellations is low, as provisions made for these units in the fourth quarter of 2015 (estimated to be 10 per cent of contract value) should suffice for now.
"Coupled with the 20 per cent down payment that will be forfeited by the shipyard, there is a substantial buffer of 30 per cent discount to contract value."
Ms Ho believes that rig sales could help SembMarine unlock cash flow. She noted an increase in rig transactions globally over the past six months as new entrants North Drilling and Borr Drilling search for distressed assets.
-
20% Percentage of down payment of the contracts that will be forfeited by the shipyard.
Last month, SembMarine unit PPL Shipyard terminated two contracts with units of Malaysia's Perisai Petroleum Teknologi for the construction of two jack-up rigs. SembMarine is marketing those rigs to prospective buyers.
SembMarine is also a "potential M&A (mergers and acquisitions) play" on Singapore shipyard consolidations, Ms Ho said.
