Deals are with Sevan Drilling, not with its troubled Norwegian parent

 

By JAMIE LEE

 

COSCO Corporation says all its four vessel building contracts are with Sevan Drilling and not with its Norwegian parent Sevan Marine.

 

The Singapore-listed company made this distinction in an announcement yesterday to allay analysts' concerns that the financial woes of Sevan Marine could have a bearing on Cosco's order book. It also said that the Sevan Drilling group has been making payments on time so far.

Cosco also said separately yesterday that two letters of intent signed with Sevan Drilling companies for contracts worth US$1.05 billion are now effective. Deliveries of drilling units under these two turnkey EPC (engineering, procurement and construction) contracts are expected to take place in the fourth quarter of 2013 and the second quarter of 2014, respectively

Analysts last week signalled potential risks to the Cosco's order book - about 20 per cent of which is made up of Sevan Drilling order - after its parent Sevan Marine said it expects to breach its minimum liquidity requirements by today under one of its financing agreements.

Sevan Marine has hired bankers to look into a financial and strategic restructuring of the firm, it announced last week.

The Norwegian oil production equipment contractor has dropped its plans for a US$275 million rights issue against its plunging share price.

Sevan Drilling also lost its chief executive Jan Erik Tveteraas, who resigned because of personal reasons.

Cosco is currently building a rig for Sevan Brasil, which is about 40 per cent completed, according to a DBS Vickers Securities report last week. Analysts had flagged risk of a possible default payment or cancellation of the project but were careful to say that risks were slim.

DBS Vickers noted that Sevan Drilling is in the midst of terminating cross-default clauses between Sevan Drilling and Sevan Marine to avoid potential loan withdrawals.

The brokerage also said that 20 per cent of financing for the letters of intent would be raised through Sevan Drilling's initial public offering - which had the listing price set at the low end of a price range that had been reduced twice.

Cosco, in a third announcement yesterday, also said it has formalised a US$114 million contract with Houston-based oil producer company ATP Oil & Gas to build a hull. The project should be ready for delivery in the third quarter of 2013.

Cosco shares lost one cent to close trading at $1.93 yesterday.