According to a 6 Feb 2015 article by Upstream, Brazil’s national development bank BNDES has postponed a US$3.2b credit lifeline for several Brazilian shipyards; this comes after news reports in mid Jan that BNDES would disburse loans to Sete Brasil for rig payments. This is negative news for Sembcorp Marine (SMM) as it could see a delay in receiving payments from Sete Brasil, or worse still, order cancellations. Meanwhile, SMM has refuted claims that it had paid bribes to Petrobras directors and Brazil’s Workers’ Party. In comparison to KEP, SMM stands to lose more from negative developments at Petrobras, due to its greater exposure in terms of orders as well as the capex sunk in its new EJA yard (S$645m as of 1H14, with more to follow). As the Brazilian situation is still fluid, we advise caution at this stage, and lower our P/E for from 12x to 11x due to increasing downside risks. As such our SOTP-based fair value estimate falls from S$3.24 to S$2.99. Maintain HOLD.
BNDES halts US$3.2b loan to Sete Brasil
According to a 6 Feb 2015 article by Upstream, Brazil’s national development bank BNDES has postponed a US$3.2b credit lifeline for several Brazilian shipyards following press reports suggesting that Sete Brasil was involved in the corruption of a network now known to have engulfed the whole contracting and procurement process at Petrobras. This comes after news reports in mid Jan that BNDES would disburse loans to Sete Brasil for rig payments.
Potential impact on SMM
This is negative news for Sembcorp Marine (SMM) as it could see a delay in receiving payments from Sete Brasil, or worse still, order cancellations. We estimate that Brazil-related orders account for 40-50% of SMM’s order book, and that more than 80% of the first drillship has been completed, 55% for the second, and 30% for the third. SMM, however, has not disclosed the amount of cash received from Sete Brasil with regards to these orders so far. The average contract price for each drillship secured by SMM from Sete Brasil was US$800m in 2012, higher than average at that time due to local content requirements. The question is how much these rigs will fetch now should they be sold in the open market, especially so during this current down market.
Refuted bribery allegations
Meanwhile, SMM has refuted claims that it had paid bribes to Petrobras directors and PT (Partido dos Trabalhadores, Brazil’s Workers’ Party). The scandals and difficulties plaguing Petrobras are unlikely to be over soon and are likely to continue to cast a pall over SMM.
Invested heavily in new EJA yard
In comparison to KEP, SMM stands to lose more from negative developments at Petrobras, due to its greater exposure in terms of orders as well as the capex sunk in its new EJA yard (S$645m as of 1H14, with more to follow). As the Brazilian situation is still fluid, we advise caution at this stage, and lower our P/E from 12x to 11x due to increasing downside risks. As such our SOTP-based fair value estimate falls from S$3.24 to S$2.99. Maintain HOLD.
According to a 6 Feb 2015 article by Upstream, Brazil’s national development bank BNDES has postponed a US$3.2b credit lifeline for several Brazilian shipyards following press reports suggesting that Sete Brasil was involved in the corruption of a network now known to have engulfed the whole contracting and procurement process at Petrobras. This comes after news reports in mid Jan that BNDES would disburse loans to Sete Brasil for rig payments.
Potential impact on SMM
This is negative news for Sembcorp Marine (SMM) as it could see a delay in receiving payments from Sete Brasil, or worse still, order cancellations. We estimate that Brazil-related orders account for 40-50% of SMM’s order book, and that more than 80% of the first drillship has been completed, 55% for the second, and 30% for the third. SMM, however, has not disclosed the amount of cash received from Sete Brasil with regards to these orders so far. The average contract price for each drillship secured by SMM from Sete Brasil was US$800m in 2012, higher than average at that time due to local content requirements. The question is how much these rigs will fetch now should they be sold in the open market, especially so during this current down market.
Refuted bribery allegations
Meanwhile, SMM has refuted claims that it had paid bribes to Petrobras directors and PT (Partido dos Trabalhadores, Brazil’s Workers’ Party). The scandals and difficulties plaguing Petrobras are unlikely to be over soon and are likely to continue to cast a pall over SMM.
Invested heavily in new EJA yard
In comparison to KEP, SMM stands to lose more from negative developments at Petrobras, due to its greater exposure in terms of orders as well as the capex sunk in its new EJA yard (S$645m as of 1H14, with more to follow). As the Brazilian situation is still fluid, we advise caution at this stage, and lower our P/E from 12x to 11x due to increasing downside risks. As such our SOTP-based fair value estimate falls from S$3.24 to S$2.99. Maintain HOLD.
No comments:
Post a Comment