Keppel Corp - SKDP avoids bankruptcy, but delays rig deliveries

According to Bloomberg, Skeie Drillling & Production ASA (SKDP) has avoided bankruptcy after bondholders agreed to a plan to rescue the company. Bondholders agreed to excuse 1.2b kroner (US$186m) in debt, the company will get 860m kroner (US$133m) in new equity and Keppel FELS will postpone the delivery of SKDP's three rigs under construction.

The total contract value of the three rig contracts is US$1.16b (S$1.78b).

We spoke to Keppel's management earlier. The company has collected 30-45% in payment. This implies S$1.1b still outstanding or 12% of existing orderbook of S$9.5b. The 30-45% payment collection is lower than our earlier estimate of 50% because the delivery dates of the rigs had been pushed back (no longer 1Q10, 3Q10 and 4Q10 respectively as per original company announcements).

We estimate the rig completion is 20%. With the latest news on SKDP, it would appear the delivery dates could possibly be postponed again. We will contact management for more details before lowering our earnings forecasts.

Maintain SELL on Keppel as share price is significantly above our target price of S$5.90. Our key concern remains the low contract wins of S$300m ytd. Orderbook will decline rapidly. Investors are far too optimistic on the recovery of E&P equipment orders amid the recent rally in oil price. Equipment orderflow typically lags oil price rally by 2 years.

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