When is a vessel delivered? Keppel version…

Show me the incentive and I’ll show you the outcome…

Charlie Munger

Keppel came out with a S$619m loss last Thursday, the result of a corruption fine and other related costs. The subsidiary Keppel Offshore and Marine are where most of the problems lie, mainly as the result of Brazilian exposure. There is a good article here on how provisioning for losses on the Sete contracts and other jack up exposure Keppel has.

But I am intrigued by the recently “delivered” MPV Everest. Keppel reports on a Jan – Dec financial year, and on Dec 18 2017, a relatively quiet time of the year, it announced it had delivered the MPV Everest… Just in time to book the associated revenue for 2017 which would help prop up what had been a dreadful financial year for the Group.

Now for those not in  the know, the MPV Everest is a strange beast, and one of the most expensive DSVs ever built (my previous thoughts on it are here). Marine Construction Services are taking the vessel, they are linked to Edison Capital who are linked to New Orient Marine Ltd, the legal purchaser, (an SPV formed to finance the vessel). MCS/ Edison have supplied their offshore tonnage to MRTS in Russia. Earlier in the year, about the time New Orient would need to have been organising take-out financing, shipbrokers I know were approached about marketing the vessel at an outrageously high day rates, seemingly desperate to back on to a financing deal. Now none can get Edison to tell them what is happening with the vessel.

The MPV Everest, at S$265m is by an order of magnitude more complicated and expensive than any vessel these companies have experience in. Admittedly, MRTS have taken the Toisa Paladin to Russia on a time charter previously, but this is on a different scale. And it is very hard to see without a long term charter, at significantly above current market rates, from an extremely creditworthy counterparty, any bank backing an SPV to provide takeout financing for New Orient Marine Ltd to pay Keppel? People who have been on the vessel have told me there have been some real problems in commissioning the dive system (although that would have been pushed to JFD).

I have also worked with an Eastern European contractor looking to get a vessel to MRTS, and if you think Indian companies don’t like to pay for boats wait until you get feedback from a Russian company… so paying for this?

As I said before I have real doubts about the value and economic credibility of this vessel: it is ICE class but not NORSOK? And it is a BV classed DSV? The dive system is Lexmar? These characteristics make the resale value of the vessel, should there be an event of default, extremely hard to gauge but must point towards the extreme downside in value and in length of time taken to even get a sale. The DSV  market itself is replete with lay-ups and loss making companies and this asset, unless it goes to Russia, has extraordinarily poor prospects for economic work in the short-to-medium term.

It is very strange that MCS, Edison, and MRTS (for whom the vessel was surely destined) have remained extremely quiet and their websites fail to reflect the enormity of the task they have completed? Verging on a world first? Announcing some work and plans maybe? A photo of the naming ceremony perhaps?

The vessel according to AIS has not left Keppel since delivery and here we are are six weeks later? It is not unusual for a vessel of this complexity to face sea trials, commissioning issues etc. But I have real doubts this is the case here. I look forward to the annual report with interest because there are only a few scenarios that would make sense here:

  1. Keppel have been paid and the vessel is merely undergoing the final few stages of fitout and sea trials;
  2. There is a handover issue between the “owner” and the yard, and actually New Orient Marine Ltd have not accepted delivery (and in all likelihood can neither pay for the vessel,  nor in this market even want it);
  3. A nuclear scenario where Keppel have booked a sale of the vessel and moved the debt to the balance sheet and/or another entity. I hasten to add I have no proof of this, but it seems so extraordinary that New Orient Marine Ltd could actually have paid S$265m for this vessel that they have no work for? Maybe some of the S$54m of other unexplained writedowns was the start of a slow series of writedowns on this vessel? All the rig owners at Keppel are paying for delayed delivery because they have no work but this vessel, in the middle of the greatest ever OSV downturn, is simply going to float away and make money? I don’t see it.

We will see. Russia is involved so you can never rule anything out here. Maybe I am being harsh given the Sete scandal, but Keppel just doesn’t strike me as a yard that did a lot of due diligence on customers in the offshore oil boom when this vessel was ordered, and so the chances of them collecting hefty upfront contributions strike me as remote.

The one thing I defintiely know is that no serious saturation diving contractor has chartered this vessel and no one in the industry knows anything about where she is going. It strikes me as very binary, either a) in the immediate future we are going to hear of a long-term charter of the vessel by a Russian company to operate the vessel in Sakhalin, at way above market rates; or b) Keppel have a massive credit issue.

I await with interest…

2 thoughts on “When is a vessel delivered? Keppel version…

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