SINGAPORE (Sept 14): CIMB Research is maintaining its “neutral” call on the local offshore & marine (O&M) sector after Seadrill filed for Chapter 11 restructuring in the US.
To recap, the restructuring agreement delivers US$1.06 billion ($1.4 billion) of new capital, and is with more than 97% of the offshore driller’s secured bank lenders.
Its secured lending bonds have agreed to defer maturities of all secured credit facilities amounting to US$5.7 billion by five years, with no amortisation payments until 2020 and significant covenant relief.
Sembcorp Marine has an outstanding sixth-generation semi-submersible drilling rig with a subsidiary of Seadrill, North Atlantic Drilling (NADL), which was awarded in 2012 and completed in 2015.
The unit is currently under a standstill agreement until Jan 6, 2018, and there has been no news of the drilling contract, nor sale.
In a Thursday report, lead analyst Lim Siew Khee opines that the recent extension of the standstill has been taken into consideration in the Chapter 11 filing, as Seadrill’s restructuring plans have been ongoing since 2016.
“There is a likelihood of a further extension in 2018 if there is no contract secured. Management is still actively marketing the unit and has received positive interest. We believe the most probable outcome for this would be to sell the unit outright instead of a joint ownership. SembMarine has received 20-30% payment from NADL for the rig,” notes Lim.
CIMB is maintaining its “add” call on SembMarine with an unchanged target price of $1.87, which continues to be based on 1.5 times FY17F price-to-book value (P/BV) – the average trading band in 1996-2003 which represented a period of weak oil prices and pre-rig boom.
On the other hand, Mermaid Maritime has three jack-up rigs held under its 33.76%-owned associate, Asia Offshore Drilling (AOD), and these are chartered to Saudi Armaco with expiry in 2019.
Operationally, Lim believes the contracts are likely to continue until expiry as the three rigs have historically enjoyed close-to-full average utilisation.
The analyst has flagged the renewal of the contract in 2019 as an operational risk given AOD’s senior secured credit facility (SSCF) is guaranteed by Seadrill but does not come under the restructuring agreement.
Should the owner of Seadrill change hands, this would also present an impairment risk as it would trigger a reassessment of the rigs’ value, in Lim’s view.
The research house has maintained its “reduce” call on Mermaid Maritime with a target price of 14 cents on the belief that slow order replenishment could continue to drag on the group’s operating leverage.
CIMB nonetheless sees Mermaid as a prime privatisation candidate as its major shareholder, Thoren Thai Agencies (TTA), has sufficient debt headroom.
“A buyout at [Mermaid Maritime’s] current share price will cost [TTA] a mere $46.8 million for a 22.7% stake,” notes Lim.
As at 10.35am, shares in SembMarine are trading flat at $1.60 or 22.94 times CY18 forward earnings while Mermaid Maritime is up 0.8% at 12 cents or 19.5 times CY18 forward earnings.
