Sembcorp Marine is reported to be exploring the possibility of securitizing receivables for its Borr Drilling rigs in a bid to boost liquidity.
A key concern for the Singapore-listed shipyard group remains its high gearing which has recently increased on the back of higher net borrowings.
Its net gearing stood at 1.44x as at end of 2018 compared to 1.1x at end of the previous calendar year. Management are reportedly keen to return it to those levels.
Analysts say cash inflows in the first quarter of 2019 for projects delivered towards the end of last year would help reduce net gearing to 1.3x.
However, this is still on the high side compared to domestic rival Keppel Corp’s 0.5x net gearing and therefore analysts don’t expect it to pay any dividends for the next two years.
Last month Sembcorp Marine cut its 2018 dividend in order to “strengthen its balance sheet and fund capex plans”.
“Despite the brightening earnings outlook, we remain cautious due to the tight balance sheet against a backdrop of rising working capital requirements and elevated capex spend,” UOB Kay Hian said in a recent report on the company.
“Critical to Sembcorp Marine profitability is the sustainability of new contract wins,” said offshore analyst Foo Zhi Wei.
“A chicken and egg situation exists where it needs to secure a higher volume of new orders to grow profits, cash flow and de-lever.
“Yet, its elevated gearing may disadvantage it from winning orders necessary to achieve that outcome.
“De-leveraging is probably the ideal solution and it is uncertain what form this might take. While the securitisation of receivables for its Borr rigs, which could massively help liquidity, is plausible, we are not certain if this is achievable commercially, given our concern regarding Borr.”
However, Oslo-listed Borr Drilling has recently indicated that it could sell some of its jack-up rigs to take advantage of improving asset values.
“There have been a few instances where we have been approached by the companies who lack rigs, but want to compete for the contracts,” Borr Drilling chief financial officer Rune Magnus Lundetrae said in a conference call late last month.
“And we’ve asked them what kind of level they are talking about in terms of what they would be willing to pay.
“And our observation and what we have experienced then, is that they are willing to pay significantly above our latest rig purchases, which was the capital we did from May last year.
“In addition it’s also significantly above what the implied value is of our rigs in the share price today.
“So, I think it’s just another sign of this market turnaround actually happening and asset prices also moving up from the level we have seen in the previous few years.”
