Abandon ship: Big-time client jumps off Keppel, hops aboard Sembcorp

Less strict payment terms made it more attractive.

It looks like Keppel just let a hefty US$236m slip out of its hand as its unattractive 20:80 payment scheme shooed Hercules Offshore away, and sent it running to Sembcorp Marine.

According to CIMB, they think that more relaxed payment terms (10:10:80) were one reason for Hercules Offshore (previous customer of Keppel) to award SMM its latest US$236m jack-up contract.

The positive is, this rig will be backed by a 5-year charter to Maersk, for deployment in the North Sea. It will also probably be the only jack-up ordered in 2014 with a charter contract, with most units built on a speculative basis. This brings SMM’s YTD orders to S$1.93bn and order book to S$13.2bn. We keep our EPS as we have forecast S$4.5bn of orders for 2014.

Here's more from CIMB:

SMM has secured a JU-2000E jack-up rig order from Hercules Offshore for delivery in 2Q16. The 400ft rig will be built based on F&G’s JU-2000E design, to be chartered to Maersk Oil & Gas in the UK sector of the North Sea.

Hercules will make a 10% initial payment, followed by a second 10% payment one year later. Its final 80% payment will be due upon delivery of the rig, estimated in Apr 16. We believe that such more-relaxed terms than Keppel’s 20:80 terms offered to Hercules in 2011 could have been the trigger for the contract.

Recall that Keppel was awarded two Super-A Class jack-up orders by Hercules in 2011 at US$208m/rig on 20:80 payment terms. However, the rigs took longer than expected to find charters, which resulted in some extension of the final settlement to Keppel.

We believe that to counter the payment terms, the contract has been priced 6% higher than a US$222m JU-2000N jack-up rig built for Noble in 2011. Hence, margins could also be better (13-15%) than the 10-12% for Noble.

This rig will be backed by a 5-year charter contract from Maersk at about US$420m, including US$9m in mobilisation fees. This translates to about US$255,000/day on 90% utilisation, which is attractive, contrary to market talk of a potential decline in jack-up day rates. In addition, this will probably be the only jack-up rig backed by contract upon order. All the others ordered in 2014 so far (27) were ordered on a speculative basis.

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