Sembcorp Marine Ltd Talks About Sete Brasil: What Investors Should Know
SembCorp Marine Ltd (SGX: S51) had a tough start to 2017.
The oil rig builder reported a decline of over 17% in revenue for the first quarter of the year. This followed the company’s 28% fall in revenue in 2016. Unfortunately, there are signs that Sembcorp Marine’s problems may drag on.
During Sembcorp Marine’s 2017 first quarter earnings presentation, its chief executive officer, Wong Weng Sun, provided an update on Sete Brasil and the company’s other major customers.
The Sete Brasil saga
Brazilian company Sete Brasil, one of Sembcorp Marine’s major customers, filed for bankruptcy in 2016. Wong provided an update in his opening address:
“Sete Brasil submitted its latest restructuring plan to the Brazilian court in April 2017. Creditors’ meetings and discussions on the restructuring plan are ongoing.
We continue to engage with Sete Brasil as necessary to better understand its restructuring plan. We are monitoring the situation closely, so as to be well prepared to respond strategically, as appropriate.”
Wong also repeated that Sembcorp Marine had taken a provision of $329 million in 2015 for Sete Brasil-related projects. Sembcorp Marine believes that the provision is still sufficient, based on current circumstances.
Other rig customers
Here’s Wong on some of Sembcorp Marine’s other customers:
“We continue to work with our customers for solutions concerning delivery deferrals of their rigs. All these rigs have been technically completed and accepted by the respective customers.
The standstill agreement with North Atlantic Drilling for the West Rigel semisubmersible rig has been extended to 6 July 2017. The rig is being actively marketed for sale or charter by both Sembcorp Marine and the customer.”
Wong reiterated that Sembcorp Marine had also taken a provision of $280 million in 2015 to cater for prolonged deferment and possible cancellations of projects. The company said that it views the provision as sufficient, based on the current picture.
At the end of March 2017, Sembcorp Marine had a net orderbook of $7.14 billion. Excluding the contracts with Sete Brasil, the order book would be $4.02 billion.
Sembcorp Marine’s trade and other receivables was $608.5 million in 2017’s first quarter, down from $692.4 million in 2016’s first quarter. Receivables declined by around 12%, which was slower than the 17.2% fall in revenue for the quarter.
Investors may want to keep an eye on changes in Sembcorp Marine’s trade and other receivables.