What should rig builders do if Sete Brasil flops?

Selling the rigs will be tough in this market.

There are few avenues open to Singapore’s largest rig builders in the event that Sete Brasil, their largest customer, ends filing for bankruptcy protection.

According to Pei Hwa Ho, equity analyst at DBS Vickers, Singapore rig builders are buffered by the 65% collection of contract value of first seven rigs, in the worst case scenario that Sete files for bankruptcy protection.

Ho noted that it might make more sense for the rig builders to continue building the units which are already at advance stages and sell them in the market. Given weak market sentiment, however, continuing construction would require millions of dollars of working capital from each yard. Selling the units will also be tough, and it is uncertain whether either of the rig builders will be able to profit from such a sale.

In addition, Sete Brasil’s imminent bankruptcy also raises concerns if the rig builders are required to write down the value of their yard facilities in Brazil.

Ho said that Sembcorp Marine will be more adversely affected because it has invested $1bn for its new Brazilian yard over the past 3 years. On the other hand, Keppel should be less affected given its Brazil yard is a relatively old facility acquired over 10 years ago.

Singapore’s rig builders took hefty impairments for the Sete Brasil projects in the fourth quarter. Keppel made provisions of $230m for the Sete Brasil projects in Q4, after accessing the construction progress, payments received, receivables from Sete Brasil and payables to vendors, among others.

On the other hand, Sembcorp Marine made $329 million in impairments for its Sete Brasil drillship projects in FY15. SembMarine warned that the current down-cycle will be "more protracted than previous cycles".

Reaching the people who run Asia's businesses is harder than it used to be.

Inboxes are crowded. Attention is short. The executives you most want to reach — the founders, CFOs, and operators who actually move budgets — are the hardest to find through the usual channels. If you're building a company, a category, or a reputation, you already know this.

We've spent twenty years building the room they read. Singapore Business Review is where senior decision makers in Singapore and across Southeast Asia come for business coverage they can't get elsewhere — in print, online, and in person at the summits and roundtables we host across seven markets.

If you have something these readers should know about — a point of view worth publishing, a product worth their attention, an event worth their time — we'd like to hear what you're trying to do.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia