24 June 2013
Singapore, China high rollers now betting on rigs: CIMB
Easy financing allows players to flip their assets before orders are fulfilled

HIGH rollers from Singapore and China have moved on from casinos to rigs, says a CIMB offshore and marine report - PHOTO: BENYU

Of the 90 jack-up rigs being built, "we are certain that 25 per cent are speculative".


HIGH rollers from Singapore and China have moved on from casinos to rigs, says a CIMB offshore and marine report.

"Casinos were their initial targets, then properties and now we are seeing high rollers from China and Singapore shifting their 'funds' to speculate on rigs, driven by the tight regulatory and monetary control in China and Singapore as well as property cooling measures implemented in both countries," co-authors Lim Siew Khee and Yeo Zhi Bin said in the June 15 report titled "From Casinos To Rigs".Of the 90 jack-up rigs being built, "we are certain that 25 per cent are speculative", said the report.Of the speculative orders, 15 per cent are said to be by Singapore-incorporated entities, 7 per cent by Luxembourg-based Prospector Offshore and 3 per cent by private equity firm Landmark Drilling.Typically, investors have tended to be Norway, but Norwegian buyers now make up 13 per cent of the jack-up orders."These speculators are likely to flip the assets and make some quick handsome profits, catalysing their share prices in the process," noted the analysts.What has eased investors into rigs are the easy financing terms from Chinese shipbuilding yards, some offering as little as one per cent downpayment and 99 per cent of the quantum on the rig's delivery, in order to score a contract.A rig replacement cycle is also firmly underway, as aged assets need to be substituted with modern drilling rigs.

Listed companies on the Singapore Exchange such as Falcon Energy, KS Energy Services, and Swissco Holdings are seen as O&M plays to watch for the next two years, with a potential 33 per cent increase in their book values from the sale of rigs.

"Although there is a possibility that KS Energy may operate the two rigs that are being built in Cosco Corp, a decision to flip these assets could give rise to an additional profit of US$52 million or a 21 per cent increase in KS Energy's current book value," said the report.

Falcon Energy, which has interest in TS Drilling, ordered two rigs from China Merchants Heavy Industry (CMHI).

"The two jack-up rigs that Falcon Energy is building in CMHI are likely to be sold to China Oilfield Services. We estimate a profit of US$60 million to be recognised in 2013, or a 38 per cent increase in its current book value."

Shares in Falcon Energy, which closed trading unchanged yesterday at 34 cents, have returned 41.7 per cent year-to-date, outperforming the benchmark Straits Times Index.

CIMB singled out Swissco as the biggest potential gainer among the three.

In March, Swissco Holdings' subsidiary Seawell Drilling subscribed for shares in Rockwood Asset Holdings, which contracted rigbuilder Jiangsu Rongsheng Heavy Industries to build an oil rig.

"Assuming a 10 per cent profit on top of its costs (US$200 million including project management and time costs), Swissco could bag US$40 million from the sale by 2014/15, which represents a 41 per cent increase in its current book value," said the report.

On the builders side, CIMB's top picks are Keppel Corporation, Sembcorp Marine and Vard Holdings.

"We see buying opportunities (in shares in these companies) on recent weakness," they said.

 (The Business Times, 18 Jun 13) BY LYNN KAN