Keppel's rig franchise to China still lacks 'proper management team'

Will this hamper a successful tie-up?

According to OSK DMG, Keppel’s subsidiary signed a 30-year management services agreement.

Here's more from OSK DMG:

We like Keppel’s tie-up with Titan to manage the TQS shipyard in China. Positives: i) bringing the Keppel design to China, which is a closed market, ii) ability to tap into financing in China, enabling end customers to enjoy attractive financing, iii) potential order flow from Titan. TS Offshore, a company linked to Titan, recently ordered a KFELS N Class jackup from Keppel. Maintain BUY and SGD12.65 TP.

Exporting Keppel’s rig franchise to China. Keppel Corp (Keppel) announced that FELS Offshore, a wholly-owned subsidiary, has signed a 30-year management services agreement with Titan Petrochemical Group Limited (Titan) and Titan Quanzhou Shipyard (TQS) to manage the TQS shipyard in Quanzhou, Fujian Province, China. Keppel will second a management team to run the yard. The agreement is conditional on the completion of Titan’s financial restructuring and the resumption of its share trading on the Hong Kong Stock Exchange.

Good infrastructure but no proper management team. The shipyard covers an area totaling 110ha and runs along 3,600m of the coastline. Currently, the shipyard has two dry docks, and will have four drydocks when the yard expansion is fully completed. Under the agreement, the shipyard will undertake projects using Keppel’s proprietary designs. Prior to this, the shipyard has limited experience in building tankers.

We like the strategic plan. In our view, the agreement is positive as the downside risk is low while Keppel could see upside from several channels: i) rig orders arising from Titan’s strong network in China and from Titan-related companies, ii) the ability to tap into China’s financing system and offer end customers attractive rig financing packages, iii) the spillover of work to Keppel’s yards in Nantong and the Philippines.