SINGAPORE (April 10): An acquisition of the US$568-million ($799-million) West Rigel rig by Transocean will be a huge positive given that the latter is jointly owned by Sembcorp Marine and North Atlantic Drilling (NADL) which is facing bankruptcy risk.
On April 4, Seadrill announced it was preparing to implement a restructuring plan which will likely involve schemes of arrangement or Chapter 11 proceedings. It has since been granted an additional three-month extension until end July to implement a restructuring plan.
As a 70.4%-owned subsidiary of Seadrill, NADL is part of any restructuring plan its parent has. In its 4Q16 earnings call, NADL said it was preparing contingency plans, including “potential scheme of arrangements or Chapter 11 proceedings” should a consensual restructuring of Seadrill not be achieved.
In a report out last week, analyst Foo Zhi Wei says materialisation of the deal will be a huge boon to Sembcorp Marine as it removes a risky, sizeable order from its balance sheet.
“Of the seven rigs at risk totalling US$1.8 billion on SembMarine’s balance sheet, the West Rigel represents 31% of that amount,” says Foo.
Furthermore, it removes any future complications that may arise should JV partner NADL get impacted by Seadrill entering Chapter 11.
“A transaction will free up capital locked up in the project, allowing Sembcorp Marine to deleverage its balance sheet. This alone is the more crucial point in the current environment as weak earnings are likely to be a facet of the business for the next few years,” says Foo.
Shares of SembMarine are trading 1 cent lower at $1.86.
