Published December 17, 2008

Keppel unit ends heavy lifter project

Keppel Verolme to scrap the concrete hull next month at its Dutch yard

By VINCENT WEE

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KEPPEL Verolme's saga with the MPU Heavy Lifter project ended yesterday with the Netherlands unit of Keppel Corporation deciding to terminate the job and scrap the hull.

Valuable space: Keppel Corp had said in July that its Dutch yard had stopped work on the floating heavy lifter for MPU Offshore Lift after the Norwegian company filed for bankruptcy

Keppel Verolme 'has decided, after evaluating all possible options, to terminate the MPU Heavy Lifter project and commence the scrapping process of the concrete hull', Keppel Corp said in an announcement yesterday.

The group had said in July that its Dutch yard had stopped work on the 140 million euro (S$283 million) floating heavy lifter for MPU Offshore Lift after the Norwegian company filed for bankruptcy. MPU offers services related to offshore heavy lifts and transport but was unable, amid the credit crunch, to find the extra liquidity required to pay for cost over-runs reportedly amounting to 100 million euros. An attempt to issue new equity to raise funds also failed.

Keppel said at the time that Keppel Verolme had received payments to meet all payments for the project up to that point. Yesterday, a Keppel spokesman said: 'Overall we expect to break even on the whole project.'

The concrete hull, which has no commercial value, will be dismantled and disposed off. Dismantling works are expected to commence next month and will be completed in about three months, which will then free up yard space and other valuable resources. Keppel declined to disclose the amount received so far, the status of equipment and machinery installed or the cost of dismantling.

'Keppel Offshore and Marine must ensure there will be no adverse financial impact on itself. For this reason, it maintains the practice of insisting on positive project cashflow at all times, such as in this MPU contract,' Keppel said in July.

'Furthermore, it ensures that in most instances it can complete projects as permitted under the contracts and sell them at prices that will comfortably pay for the outstanding balance of the contract prices,' the group added then.

Keppel Verolme is wholly owned by Keppel Offshore and Marine.

The high degree of customisation in projects such as this yields higher margins, but also makes it difficult to find alternative buyers in the event of default or other completion problems. Keppel says that Keppel Verolme is the most established offshore and marine yard in Europe.

Keppel Offshore and Marine does not give revenue break downs for its individual yards but its 2007 annual report says that Keppel Verolme's revenue grew by 61 per cent in 2007, with contributions mostly from the offshore division.

'The matter is not expected to have any material impact on the net tangible assets or earnings per share of Keppel Corp in the financial years ending 2008 and 2009,' Keppel Corp said. Keppel Corp shares closed six cents higher at $4.41 yesterday.