An honorable member of the Coffee Shop Has Just Posted the Following:
Through Monday, shares in the state-run builder of offshore oil rigs have already dropped around 10% in 2016. The weak oil price doesn’t help, but a more immediate issue is the corruption scandal enveloping Brazil’s national oil giant Petrobras, which also happens to be the world’s most indebted oil major. Investors now speculate that an entity linked to Petrobras, called Sete Brasil, could file for bankruptcy later this month.
Sete Brasil accounts for roughly 40% of Sembcorp Marine’s backlog of orders. Daiwa Capital Markets estimates that, if outstanding orders from Sete and Petrobras get canceled, Sembcorp’s adjusted order book will leave it with at most 1.5 years of revenue. As of September, its order book was valued at 2.3 times revenue. Continuing contracts in Brazil could also get renegotiated since they were struck at above current market rates.
Combined with oversupply in the oil-equipment industry, as major oil companies pare back big projects, these woes in Brazil will hit Sembcorp’s earnings. Expect its shares to keep getting hit, too. Despite having halved in the past year, they remain rich.
Sembcorp trades at 1.1 times book value, a metric that gives investors a sense of the cost to replace hard assets when times are bad. Most of its peers trade for less than book, including Singapore-listed Keppel Corp., Cosco Corp. and South Korean giant Samsung Heavy Industries. Sembcorp’s storm isn’t over yet.
http://www.wsj.com/articles/brazilia...orp-1452510182
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12-01-2016, 05:00 AM
Brazilian Blowout Hits Singapore’s Sembcorp
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