SapuraKencana’s not worried
It sees little risk of contract default with debt-hit Petrobras
SapuraKencana Petroleum Bhd does not expect the uncertainties surrounding the financing ability of Brazilian energy giant Petróleo Brasileiro SA (Petrobras), which accounts for around 50% of the former’s outstanding orderbook, to pose a significant risk to the company.
In a recent report, Hong Leong Investment Bank Bhd (HLIB) quoted SapuraKencana’s management as saying that the company saw little risk of contract default from Petrobras.
The Malaysian oil and gas services and solutions provider based its argument on the good payment track record that Petrobras had with global offshore deepwater drilling company Seadrill Ltd.
“Even in the event of contract default, there would be a penalty term attached in the contract,” SapuraKencana told HLIB.
According to SapuraKencana, its first contract with Petrobras was on track to commence in the fourth quarter of 2014, while the second contract would commence in the second quarter of 2016.
SapuraKencana won its first contract with Petrobras to construct, charter and operate three pipe laying support vessels in 2011. The contract was worth US$1.4bil (RM4.5bil) in 2011. In the middle of this year, SapuraKencana secured a new contract worth US$2.7bil from Petrobras to build, charter and operate three deepwater flexible pipe laying support vessels over eight years.
Concerns over Petrobras’ creditworthiness grew in recent months, as the company’s credit default swap prices kept increasing in tandem with the company going deeper into debt to finance its US$237bil five-year investment plan.
Petrobras’ debt in the second quarter of 2013 stood at US$112bil, representing an increase of 26% from US$89bil in the corresponding quarter last year, with a net gearing of 0.52 times.
“It is hard to imagine Petrobras defaulting, as it is a national oil giant, akin to our Petronas (Malaysia’s national oil company Petroliam Nasional Bhd),” an analyst with a local bank told StarBizWeek.
“Having said that, we can’t discount the risk that such an eventuality could have on SapuraKencana… it ultimately depends on the details spelt out in the contracts that the company has with Petrobras,” he said.
According to HLIB, which maintained a “buy” call on SapuraKencana with a target price of RM4.74, it was crucial for Petrobras to ensure that its oil production started on time, as that would increase the latter’s future cash flow and reduce the debt level, and hence, reduce risk.
A source, meanwhile, clarified that Petrobras had huge oil reserves which means repayment to its vendors would not be a problem.
SapuraKencana’s shares shed one sen yesterday to close at RM3.72.