Liquidity Bolstered by Capital Influx, Drillship Sale
The author is an analyst of KB Securities. He can be reached at newday@kbfg.com. -- Ed.
Drillship from inventory sold for USD245mn
— On Dec 1, SHI announced that it had signed a deal with a European drilling company to sell one of its drillships in inventory for USD245mn.
— The drillship was originally ordered by Ocean Rig in 2014 (before acquisition by Transocean), but the order was canceled in October 2019. SHI decided to finish construction and try to sell it.
— SHI is expected to begin reactivation procedures (e.g., cleaning, pilot operations) to prepare the ship for delivery in 1Q23.
No. of drillships in stock drops to three
— Earlier this year, SHI had five drillships in stock. One was leased in June, and now, with this latest deal, three drillships remain.
— The leased drillship went to Italian-firm Saipem last month. The lease includes a purchase option.
Sale to have insignificant impact on earnings
— Initially, the drillship order was received at USD715mn, but after numerous valuation losses, book value slid to USD250-260mn.
— Additional losses may be recorded, as the selling price falls short of book value, but favorable FX rates should offset the bulk of any loss, minimizing the deal’s impact on earnings.
— The sale will not create any revenue, as the proceeds were already been booked.
Liquidity bolstered by capital influx, drillship sale
— SHI’s liquidity should improve given the KRW1.3tn in cash raised from a recent capital influx and KRW300.0bn coming from the drillship sale.
— Recent leases/sales of drillships suggest that market conditions are bottoming out, offering hope for future sales. Drillships have been a headache for SHI for several years.