MPV Everest at mooring

According to the Marine AIS the MPV/DSV Everest is currently moored in Singapore. It is now over 2 months since Keppel stated they had delivered the vessel. I have always taken delivered to mean “paid for” by the new owner? (Previous thoughts here).

I am pretty sure that hasn’t happened in this instance. But if anyone has any definitive information on it could you PM/email me?

I note with interests the auditors (PWC) made the following statement in 2016:

Downturn in the Oil and Gas industry

The downturn in the Oil and Gas industry has had a significant impact on the financial statements of the Group, in particular over the following areas:

i) Appropriateness of revenue recognition and recoverability of work-in progress balances in relation to Offshore and Marine construction contracts
(Refer to Note 13(a) to the financial statements)

We focused on this area because of the significant judgment required in:

  • assessing whether the Group’s customers will be able to fulfill their contractual obligations and take delivery of the rigs/vessels at the contracted or revised delivery dates; and
  • estimating the net realisable values of stocks for sale.

We reviewed management’s assessment of the risk of customers defaulting on the contracts, and corroborated management’s assessment against our understanding of the industry. We read public announcements and other externally available information that would be relevant to understanding the financial position of the major customers…

We reviewed the terms of each contract as well as the terms of the modifications to assess if management’s judgment on the continued recognition of revenue and associated margin was appropriate.

We also reviewed management’s assessment of the external valuation of each rig/vessel, to assess if the related work-in- progress balances of construction contracts and stocks would be recoverable through sale, in the event that any of the Group’s customers are unable to take delivery of the rigs/vessels at the contracted or revised delivery date.

And the conclusion (for year end 2016):

Based on our procedures, we found that management’s judgment around the recognition of revenue, including associated margin on the Group’s Offshore and Marine projects for the financial year was appropriate. We also found that the work-in-progress balances on construction contracts and stocks were appropriately assessed to be recoverable.

So I guess it would be embarrassing for all concerned if there was a major event of default here? You would think an SPV set up to purchase a SGD 250m vessel, with no underlying charter and pre-arranged take-out financing, would therefore have warranted some special attention from the auditors?

This is not a “farm burner” for a company the size of Keppel, but it is also pretty serious if the counterparty can’t pay, because there are a host of these high-class DSVs building up now. The Everest is BV classed which also surely limits her resale potential? I have no idea what would be required to get her DNV or Lloyds classed but surely any other buyer would expect this to be to Keppel’s account?

Frankly, I would have expected Keppel to provide slightly more information regarding this vessel. It is a material transaction for the Group and it is very hard to believe they have simply delivered the vessel, been paid for it, and the new buyers have left her at anchor in Singapore? And if the contracted buyer cannot fulfill their obligations then any value to Keppel of this assets will be tens of millions lower than the contracted build price.

Surely Vard are (even more) worried now? I heard again last week that their DSV had been sold (this time the rumour was to a smaller company), but this ship has a clearing price (as eventually do the UDS vessels). With Technip scrapping the Wellservicer they have a host of options on replacement tonnage should they choose to invest in what is turning into an oversupplied sector.

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