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shadowmoon ( Date: 06-Apr-2011 22:53) Posted:
Credit Suisse says COSCO is 'most expensive shipbuilder globally' FOLLOWING ON COSCO’s letter of intent to build two semisubmersible rigs for Sevan Drilling, Credit Suisse has now raised questions on the attractiveness of the deal for the shipbuilder. Credit Suisse said that based on Sevan Drilling’s investor presentation published on 3 April, the cost of hull and equipment of US$459 mn for two semisubmersible rigs is 20% lower than the Sevan Brasil rig under construction. Hence, the profitability of this project for Cosco would be even lower than current contracts despite improved execution from the repeat order. Furthermore, the back-end loaded payment structure of 20% payable on signing of firm contract and 80% at delivery means that the financing cost would be borne by Cosco, noted Credit Suisse. There is a further unattractive feature: The signing of final contracts is subject to the listing of Sevan Drilling, and is expected by the end of May 2011. The two newbuild rigs ordered are speculative and do not have contract coverage upon delivery. Options for two additional drilling units expiring in 1Q12 and 3Q12 have a similar price and payment structure, leaving little margin upside even if exercised. Credit Suisse said it maintained its UNDERPERFORM rating and target price of S$1.60 for Cosco. Another unfavourable comment from Credit Suisse was: “On 2011E P/E of 20x, Cosco remains the most expensive shipbuilder globally despite its poor execution track record.” |