NEUTRAL Maintained
S$0.34 Target: S$0.41
Mkt.Cap: S$267m/US$218m
Seadrill becomes equal partner in AOD;AOD exercises first of two options
Exercised in-the-money option. Mermaid’s associate, Asia Offshore Drilling (AOD), has raised US$80m in gross proceeds from a private placement of new shares. Accordingly, both Mermaid and the international driller, Seadrill, have become equal shareholders in AOD, each with a 33.75% stake. Proceeds will be used to exercise AOD’s first of two jack-up options with Keppel Corp, worth US$184m. We view the exercise of the option favourably given demand for new high-spec jack-ups. In addition, the options are in-the-money (strike price of US$184m vs. current newbuild price of US$190m). Despite the positives, we remain Neutral on Mermaid as we await more concrete evidence of a turnaround in subsea as well as drilling contracts for jack-ups under construction. Such should ensure debt financing and the remaining 80% payment for the jack-ups upon delivery. No change to our earnings estimates or target price of S$0.41, still based on 0.7x CY11 P/BV (average since FY09).
The news
AOD has raised US$80m in gross proceeds from a private placement of new shares. Mermaid has been allocated US$15m in the private placement and now owns 33.75% of the enlarged share capital. International driller, Seadrill, has been allocated US$54m of new shares, which also give it equal ownership of 33.75%. Proceeds from the placement will be used to exercise AOD’s first of two jack-up options with Keppel Corp (worth US$184m), for delivery in 3Q13. In addition, Seadrill will be responsible for construction supervision, project management and commercial management of all AOD rigs. Lastly, AOD has a second option for the construction of a fourth jack-up worth US$187m, exercisable by end-Sep 11.
Comments
Ambitious move into jack-ups. We view the exercise of the option favourably given demand for new high-spec jack-ups. In addition, the options are in-the-money (strike price of US$184m vs. current newbuild price of US$190m).
Capitalising on Seadrill’s platform. Seadrill is one of the leading drilling companies in the world with a versatile fleet of 46 drillers (with another 14 under construction), comprising drillships, jack-ups, semi-subs and tender rigs. It has 25 rigs operating in Asia (mostly in South-East Asia). We believe its participation would enhance AOD’s chances of securing drilling contracts for its jack-ups under construction.
Valuation and recommendation
Maintain Neutral and target price of S$0.41, still based on 0.7x CY11 P/BV (average since FY09). Also, no change to our earnings estimates. Despite the positives, we remain Neutral on Mermaid as we await more concrete evidence of a turnaround in subsea as well as drilling contracts for jack-ups under construction. Such should ensure debt financing and the remaining 80% payment for the jack-ups upon delivery.
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