Keppel Uncertainty Prolongs as Brazil Client Delays Decision

  • Sete Brasil postpones meeting about possible restructuring
  • Daiwa analyst upgrades Keppel, saying worries overdone

Keppel Corp.’s uncertainties about the oil-rig market are set to continue after a key customer in Brazil that has fallen more than a year behind on its bills postponed a meeting on restructuring.

Sete Brasil Participacoes SA decided to push back the meeting, a company press official said in an e-mailed statement Thursday. No new date has been set.

That came after Keppel, the world’s biggest builder of oil rigs, said Thursday it stopped work in the fourth quarter on projects for Sete. The Singapore-based company took a S$230 million ($160 million) charge on the delinquent projects when it reported earnings Thursday.

Sete Brasil’s discussions revolve around plans for a restructuring or filing of bankruptcy protection after plunging oil prices dented demand for its drilling equipment. Construction work on four semi-submersibles ordered by Sete Brasil, which is also embroiled in a corruption probe, progressed by less than 4 percent per quarter last year, Keppel said Thursday.

"Keppel, being one of the earliest Singapore companies to enter the Brazilian market, has not been spared from this storm," Chief Executive Officer Loh Chin Hua said. "We had taken steps to mitigate our exposure by slowing the construction of Sete’s rigs after payments from our customer ceased over a year ago."

Surprise

Keppel reported that fourth-quarter profit fell to S$405 million from S$726 million, as several projects it had expected to deliver in 2015 were pushed back to this year. Still, that beat the S$392 million average profit forecast according to the average of six analyst estimates compiled by Bloomberg.

The results were a "surprise on the upside," wrote Royston Tan, an analyst at Daiwa Securities Co. Tan upgraded the stock to outperform from hold after the results, saying the recent selloff in the stock was overdone.

“Although the quantum of potential order cancellation is significant, the earnings impact is small,” Tan wrote.

Keppel shares rose 4.6 percent Friday to S$5.02. The stock is down 23 percent since the beginning of the year, making it the third-worst performer on the Straits Times Index, which has fallen 11 percent.

Oil’s Plunge

Keppel and rival Sembcorp Marine Ltd. face the risk of clients asking for further delivery delays and cancellations, and of new orders drying up, as oil prices have fallen below $30 a barrel for the first time in more than a decade.

Sete Brasil fell into financial distress after it was unable to secure long-term financing amid allegations of kickbacks to its only client, state-run oil producer Petroleo Brasileiro SA, or Petrobras. Creditors have repeatedly rolled over Sete Brasil’s loans since October 2014 to help it stay afloat, according to people familiar with the matter.

Sete Brasil is among more than a dozen companies crippled by the 22-month Petrobras corruption probe, whose impact in Asia is being felt beyond the Singapore yards. Japan’s Kawasaki Heavy Industries Ltd. said Jan. 14 it will book a charge of 22.1 billion yen ($188 million) and expects to cut forecasts for this fiscal year. Its Brazilian venture hasn’t been paid in more than a year because of the corruption issues, the Japanese company said.

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