Sembcorp Marine: Unaware of legal proceedings

Monday, May 25, 2009

SCM unaware of legal proceedings brought upon by PetroRig I. Sembcorp Marine (SCM) made a press release last evening, expressing that its wholly-owned subsidiary, Jurong Shipyard Pte Ltd (JSPL), was not aware of an action by PetroRig I Pte Ltd against Jurong Shipyard over the termination of the construction contract for PetroRig I. JSPL added that it had not received any official notice of such US proceedings. Even if there was such an action, JSPL would firmly defend it as it believes it had acted properly under the terms of the construction contract. JSPL maintains that it would proceed with the sale of the semi-submersible, PetroRig I, as advertised, with the bids closing at noon on 20 May 09.

SCM remains confident it is able to sell PetroRig I. As we recall, SCM is currently in talks with three potential international drilling contractors for the sale of PetroRig I. While we believe JSPL is able to recover the final payment through the sale of PetroRig I, we remain concerned over the remaining instalments amounting to US$505m for PetroRig II and PetroRig III. We think the relationship between SCM and PetroMena may be strained as a result of this incident.

Nevertheless, SCM’s healthy balance sheet is able to take on the remaining capex. SCM is in a healthy net cash position of S$1.9b, of which S$1.2b is progress billing in excess of work-in-progress. Assuming a gross profit margin of 14% and outstanding work of 40% and 60% on PetroRig II and PetroRig III respectively, SCM requires cash of US$435m (S$653m) to complete the remaining works. We believe SCM’s healthy balance sheet will be able to take on the remaining capex on these two semi-submersibles. Maintain BUY, Target S$3.06.


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