Sembmarine seeking alternative sources for skilled workers, likely to incur extra costs

Sembmarine said it will provide further updates on its labour shortages and resulting cost impact in its first-half 2021 financial results announcement.
Sembmarine said it will provide further updates on its labour shortages and resulting cost impact in its first-half 2021 financial results announcement.PHOTO: SEMBCORP MARINE

SINGAPORE (THE BUSINESS TIMES) - Sembcorp Marine (Sembmarine) has begun exploring alternative sources of skilled labour, which is likely to incur increased manpower costs for ongoing projects, as it continues to face a shortage, with the increased restrictions implemented in phase two (heightened alert).

In an update on Tuesday (June 8), the marine and offshore engineering group also said that to date, there has been no cancellation of any of its existing projects, and it would continue to coordinate with customers to reschedule project completions.

This comes just a day after the group announced that its wholly owned unit, Jurong Shipyard, has agreed to revise the delivery dates of two ultra-deepwater drillships it has contracted to build for Transocean Offshore Deepwater Holdings, due to work disruptions arising from Covid-19.

Sembmarine said that the amendment agreements are not expected to have any material impact on its earnings per share for the year ending December this year.

The delivery dates of the vessels, Deepwater Atlas and Deepwater Titan, have been rescheduled to December this year and May next year, respectively.

They were originally slated for delivery in the second half of this year, noted Citi Research analyst Chang Kwok Wei in a Tuesday report.

Transocean has already paid 35 per cent of the contract price for Deepwater Atlas - with about US$370 million (S$490 million) payable remaining, and 30 per cent for Deepwater Titan - with a remainder of about US$440 million to be paid.

The agreements further provide that upon the respective delivery of the vessels, Transocean will make partial delivery payment, with the remaining sums payable in quarterly instalments, with accrued interest of 4.5 per cent a year within five years from the delivery date, according to Mr Chang.

He acknowledged that Sembmarine’s net current liabilities position had finally been reversed in the first quarter of 2021 post-refinancing, but remains negative on the group.

“The deferment in delivery payments from Transocean will have an adverse impact on Sembmarine’s cash flows,” he said.

“We had previously expected an approximately $1 billion boost to the coffers in financial year 2021. However, this amount has now been stretched over a five- to six-year timeframe and would delay a return to free cash flow-positive territory.”

Mr Chang also believes that the group is chasing large new-build contracts to provide ample coverage of its enlarged fixed-cost base, which will affect working capital requirements.

With the likely impact on Sembmarine’s net gearing and the recent announcements, Citi has maintained its “sell” call on the group, with an unchanged target price of 14 cents.

On Tuesday, Sembmarine shares were trading at 20.5 cents, up 0.5 cent, or 2.5 per cent, as at the midday break.