Keppel Corp has warned investors it expects to announce “material impairments” related to its offshore business when it reports its results next week.
The Singapore shipbuilding group warned that its financial results will be “significantly and adversely impacted” for the second quarter and first half of 2020.
The impairments come following a review of the assumptions used in the assessment of the carrying values of certain assets of the group. These include the recoverability of contract assets, receivable balances and stocks under work-in-progress and investments in associated companies, Keppel said.
“The pandemic has severely impacted the global economy and brought about significant market volatility and uncertainty, including a sharp reduction in global demand for oil and in oil prices,” Keppel said in a regulatory filing.
Major cuts
“Amid the highly volatile environment and low oil prices, oil majors are curtailing exploration and production spending, which has adversely impacted day rates and utilisation rates of the group’s offshore and marine business.”
Keppel is subject to a partial offering by Singapore sovereign wealth fund Temasek Holdings, which is looking to take a controlling 51% stake in the company.
Last week, Sembcorp Marine reported a half-year loss of SGD 192.1m ($138m) due to the pandemic-related shutdown of production at all its Singapore yards from April.
Chief executive Wong Weng Sun agreed to take a 50% pay cut as part of a group wide costs-cutting initiative, while other ranks took cuts of between 10% and 15%.
Analysts at UOB Kay Hian recently said Singapore’s shipyard may have to wait another year before offshore newbuilding orders resurface.
“The industry outlook remains challenging and new order flow may only resurface in the first half of 2021, in our base-case scenario. This reinforces our view that an up cycle is over two years away,” analyst Adrian Low said.
