Sembcorp Marine - RHB Invest 2017-10-09: Borr Drilling Buying Nine Jack-Up Rigs

Sembcorp Marine - RHB Invest 2017-10-09: Borr Drilling Buying Nine Jack-Up Rigs SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - Borr Drilling Buying Nine Jack-Up Rigs

  • Sembcorp Marine has signed an agreement with Borr Drilling for the sale of nine Pacific Class 400 jack-up drilling rigs at a total consideration of approximately USD1.3bn. 
  • Deliveries are to take place over a 14-month period, with an upfront payment of USD500m. 
  • We are positive on the sale, as it allows the company to realise some value for these rigs. However, we maintain our NEUTRAL recommendation and SGD1.65 TP (5% downside), as we foresee a continuing sluggish orderbook replenishment ahead.



Salient details. 

  • Sembcorp Marine has announced the signing of agreements for the sale of nine Pacific Class 400 jack-up drilling rigs to Borr Drilling Ltd (Borr Drilling) at an aggregate consideration of approximately USD1.3bn (SGD1.77bn). This includes a market-based fee calculated on the value uplift of the rigs sold.


Sale conditions. 

  • Borr Drilling is to take delivery of the nine jack-up rigs over a 14-month period, ie between 4Q17-1Q19 with an upfront payment of USD500m (c.SGD680m). The balance amount is to be paid any time within five years from the respective delivery dates of the rigs. 
  • Borr Drilling would also be paying interest at market rates from the respective delivery dates until the full payment of the balance amount.


Nine rigs. 

  • The rigs sold include six from contracts that Sembcorp Marine had earlier terminated with its customers, with another three presently under various stages of construction. We understand that the sale of the nine jack-up rigs would result in a loss of approximately SGD15m.


Taking it off its hands. 

  • The sale would allow the company to recoup some of the costs associated with the rigs. It would also take them off its balance sheet. The USD500m downpayment should be positive to Sembcorp Marine’s cash position. 
  • Recall that Borr Drilling also did a similar agreement to buy five rigs from Keppel Corp (KEP SP, BUY, TP: SGD7.34) recently.


Maintain NEUTRAL. 

  • We believe the sale of these rigs is positive for Sembcorp Marine. This is because the company would be able to recoup some of its costs while getting an upfront payment of USD500m. 
  • We expect Sembcorp Marine to be able to add another SGD250m in FY17. We also expect it to land c.SGD500m in FY18. 
  • We maintain our NEUTRAL recommendation and SGD1.65 Target Price on this counter, as we expect its orderbook replenishment ahead to remain unexciting.




Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-10-09
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.650 Same 1.650



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