SembMarine struggles to stay afloat as cash-strapped customers defer rig orders

At least $2b of rig deliveries will be delayed.

Sembcorp Marine's core rig-building business will flounder further in the second half as its cash-strapped customers defer deliveries of jack-up rigs.

Analysts warn that the company's rig-building revenue is expected to drop further in coming quarters, after booking a 29% year-on-year in the second quarter.

"We believe SMM is in discussion with ‘a handful’ of jack-up rig customers to delay delivery, which could push revenue recognition to the right. The possibility of zero jack-up rig delivery in 2H15 is high," said CIMB analyst Lim Siew Khee.

Among the group's most at-risk customers is Mexico's Oro Negro, which has 3 rigs under construction with SembMarine.

Other threatened customers include Perisai Petrolem, Marco Polo, and North Atlantic Drilling.

KGI Fraser analyst Joel Ng warned that order deferments are an unavoidable for SembMarine, particularly as its clients have weaker balance sheets.

“Cancellations of orders and margin squeeze could add to more downside risks to SembMarine. Although our base case assumes order delays, we do not rule out order cancellations for SembMarine given that their customers have weaker balance sheets compared to peers like Keppel. [These] customers may not have contracts for their units. We estimate that at least $2bn of deliveries may have to be delayed until at least next year, given the current market conditions,” Ng said.