Published November 5, 2009

SembMarine leaps into future with massive new shipyard

$750m first phase to be ready by 2013 and remainder over 12 years; no cash-call to fund expansion

By VINCENT WEE

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(SINGAPORE) Sembcorp Marine yesterday took a bold step into the future by unveiling plans to build a massive integrated yard facility in Tuas View Extension. This will be Singapore's first new-built yard in a generation. Its first phase is expected to cost about $750 million and be completed by 2013.

Future giant: The new yard will increase total dock capacity by 62 per cent to 3.08 million dwt from 1.90 million dwt currently and will feature optimised docking and berthing facilities, with an improved dock and quay ratio

Development of the 73.3-hectare first phase will begin next month and is expected to take four years. The remainder of the 206-hectare total site will be developed in two more phases over a period of 12 years.

'This is the right time to build in order to anticipate (demand) especially after the most recent crisis as we have seen neighbouring countries build up their shipyard facilities,' said SembMarine president and CEO Wong Weng Sun. 'We're trying to envisage the next cycle . . . and this is the best time to build and crucial to success in the future.'

In response to concerns that the new capacity will come onstream after the rigbuilding cycle has peaked, Mr Wong said that the first phase will focus on ship repairs and conversions, two sectors that should remain strong. Dock capacity has not kept pace with the increase in the global fleet which has added an average of 1,000 ships per year over the past four years.

Sembawang Shipyard managing director Ong Poh Kwee revealed that SembMarine turned away over 400 ships last year alone as it did not have the capacity to take them in.

Ship repairs contribute around $150 million to $160 million in turnover at the moment with SembMarine making the most of its current facilities to build rigs, do conversions as well as take in what repair jobs it has capacity to handle. The new yard will create 200 vessel slots per year, Mr Wong said.

SembMarine's regular customers and preferred partners have more than 1,000 vessels between them, most of which call in Singapore for their repair and maintenance needs. As much as 86 per cent of the repair business comes from these regular customers, Mr Ong said. With as much as half of the world's ships expected to be plying Asian routes in future, quicker turnaround times will be an increasingly important factor.

A 30-plus-30 years' lease has been signed with JTC for the first phase and SembMarine's current operations in Pulau Samulun will be relocated to the new yard and the land returned to JTC when it is ready for commercial operations. SembMarine will maintain operations at its other units PPL Shipyard and Sembawang Shipyard for now.

The development costs will be funded through a combination of debt and internal funds. SembMarine said that it has secured $700 million in committed banking facilities comprising $300 million term loans and $400 million revolving credit facilities with various banks.

SembMarine said that the expansion is a long-term project and is not expected to have any material impact on the net tangible assets and earnings per share for the year ending Dec 31, 2009. Barring unforeseen circumstances, it expects positive contributions to earnings when phase one becomes operational.

CFO Tan Cheng Tat assured investors that there would be no cash calls to fund the expansion. He added that the group also had the capacity to gear up to as much as 1.75 times, giving it the ability to take advantage of opportunities to expand overseas as well despite the huge capital expenditure planned over the next few years.

When fully completed, the new yard will increase total dock capacity by 62 per cent to 3.08 million dwt (deadweight ton) from 1.90 million dwt currently and will feature optimised docking and berthing facilities, with an improved dock and quay ratio, to ensure effective utilisation and faster turnaround in repairs and upgrading of ships, rigs and floaters.

The first phase will more than triple land area from the current 20 hectares, nearly quadruple drydock capacity to 1.55 million dwt from the current 400,000 dwt and boost quay length by almost three and half times from 1,071 metres to 3,408 metres. This will give SembMarine four very large crude carrier-size drydocks compared to two now.

Integrated facilities and newer technology will make the yard more efficient and productive which will in turn boost capacity and profitability, Mr Wong said. He expected productivity at the new yard to increase by at least 15 to 20 per cent.

The new facility marks a key milestone in the transformation of Singapore's offshore and marine sector, the Economic Development Board (EDB) and JTC Corp said in a joint release.

'The first integrated yard facility represents how Singapore stays at the forefront of the marine and offshore sector through constant innovation and modernisation,' said EDB chairman Leo Yip.

'Given the yard's new requirements, it was a challenging project for JTC,' said CEO Manohar Khiatani. 'We worked very closely with SembMarine to create a unique custom-made waterfront profile for the integrated new yard facility.'