Published June 5, 2009

Keppel Corp shares hit by Skeie news

Counter recovers to end 2.75% lower as market waits for developments

By NISHA RAMCHANDANI

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SHARES of Keppel Corporation took a beating yesterday on news that one of its customers could be facing bankruptcy if a proposed restructuring fails to take off.

Keppel shares dropped to as low as $6.90 in intra-day trading before ending at $7.08, but still 20 cents, or 2.75 per cent, down. More than 14 million shares changed hands.

The customer, Skeie Drilling and Production (SKDP), currently has construction contracts for three N-Class jack-up offshore drilling rigs with Keppel Corp's subsidiary Keppel Fels, valued at about $1.7 billion in total.

On Wednesday, Keppel Fels had said that it is supportive of and is participating in the restructuring exercise.

'We believe that there is a high likelihood that either banker or Keppel will take control of the rigs and put them up for sale,' said CIMB-GK Research in a note yesterday. CIMB went on to point out that not all units may be sold, given the tough jack-up market.

'Earnings loss is about 4 per cent to Keppel 2010 earnings if two units are sold and 9 per cent if one unit is sold,' CIMB said.

In a sector report in April, CIMB estimated that 5 per cent of Keppel's order book has a high risk of cancellation and 25 per cent is of medium risk.

DMG & Partners said in a report that SKDP could 'possibly be the final remains of potential order cancellations as Keppel's remaining customers are financially strong and macro environment turns for the better'.

The share price is likely to be pressured in the near term, it highlighted, until further clarification is obtained.

To avoid filing for bankruptcy, SKDP was trying to get 'irrevocable pre-acceptances' from majority of its bondholders by 8pm yesterday (Oslo time). Details were not available at press time.

CIMB has maintained its 'underperform' rating on Keppel with a $7.20 target price.