It has been found that Daewoo Shipbuilding & Marine Engineering (DSME) is not going to be in a hurry to deliver its drillships to Sonangol in Angola, based on the recent funding and turnaround, although an oil price of US$65 per barrel is almost met as a precondition of the previous negotiations between Sonangol and DSME creditors.
DSME stopped its drillship delivery negotiations with Sonangol in May this year. The two drillships Sonangol ordered in 2013 were predicted to be delivered in June or July last year, but the Angolan oil company has refused to take them for over a year due to its financial difficulties attributable to a drop in oil price.
Early this year, the DSME creditors including the Korea Development Bank (KDB) suggested an oil price of US$65 per barrel as a precondition for the conclusion of the negotiations. The price has recently risen to about US$64 per barrel of Brent crude oil, but DSME is not planning to resume the negotiations.
“We have no reason to hurry now in proceeding with the drillship delivery negotiations with Sonangol,” DSME said, adding, “The international oil price, which was called into question by Sonangol, is on the rise and Sonangol is in need of the drillships.” What this remarks imply is that the ships are unlikely to be delivered within this year.
DSME’s inside track is because of the recent funding for and turnaround of its business as mentioned above. Early this year, DSME faced a serious liquidity crisis as the delivery of ships it built, including the drillships, was postponed. Its negotiations with Sonangol drew much attention during the preparation of a corporate restructuring plan for DSME as the liquidity crisis could be handled at least in part by the delivery of the drillships. DSME received 200 billion won in down payment and is scheduled to receive approximately one trillion won in return for the delivery.
Sonangol tried to cut the remaining amount by taking advantage of DSME’s liquidity crisis, but DSME turned down the request. Instead, they agreed to the payment of 70% along with the rest in the form of shares. However, details were not discussed at that time.
Then, DSME creditors provided 2.9 trillion won for DSME. The company is currently restoring its business, too. Its net profit totaled 206.5 billion won in the third quarter of this year, when its cumulative net profit for this year reached one trillion won. The company has delivered five offshore plants along with 40 ships as scheduled since the beginning of this year and its business goals for this year are completely achieved once the two drillships are delivered.
DSME is also prepared for the worst-case scenario, that is, the two drillships being abandoned by Sonangol. In this case, DSME can sell the ships for 80% of the price not including the down payment. “We are planning to have talks assuming that the delivery can take up to two years,” the creditors explained, adding, “We will do so with prudence and with the focus laid on profitability.”