SINGAPORE (March 21): CIMB is upgrading Keppel to “hold” from “reduce” after the rigbuilder says the contracts with Transocean for the five Super B jack-up rigs will be novated to Borr Drilling at US$216 million ($302 million) per rig.
That is almost at a zero discount to its original price of US$219 million per rig.
“We think the Borr contract is a good reference point for ‘realisable value” of undelivered rigs... However, there could still be some impairment in 2017 for mothballing of Singapore yards,” says analyst Lim Siew Khee in a Tuesday report.
Keppel FELS on Monday night said it had entered into an agreement to novate the five Super B high specification jack-up rigs currently being built by Keppel FELS for Transocean to Borr Drilling at US$1.1 billion.
This is part of the exercise of Borr Drilling to acquire Transocean’s entire fleet of jack-up rigs for US$1.35 billion comprising 10 existing rigs and five under construction at Keppel FELS.
Under the new terms, the first three rigs will be delivered in 2017-2018, while the remaining two rigs will be delivered in 2020.
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Each rig is now priced at US$216 million instead of the original price of US$219 million signed in 2013. US$275 million deposits will be paid in the new terms, freeing up working capital. The first three rigs are 75% completed while the remaining two are less than 20%.
The US$1.35 billion package paid by Borr Drilling means it is paying US$250 million for Transocean’s fleet of existing jack-up rigs including those that are cold stacked. Six out of the 10 Transocean rigs are more than 15 years of age and five are about 4.5 years.
Lim assumes the 15-year-old rigs are priced at US$5 million, leaving the 4.5-year-old rig priced at US$55 million, or a 70% discount to cost.
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Still, Keppel was able to get almost zero discount for its fleet, which could be due to the quality and high-specs of Super B class.
“We upgrade Keppel to Hold from Reduce with a revised sum-of-parts valuation,” says Lim, “Oversupply of rigs will still be an overhang and we are unlikely to see a surge in order momentum while ROE for Keppel Land has declined to c.6% and it is in need of more recycling of capital.”
Shares of Keppel are trading 1 cent lower at $6.84.
