The map above, in the yellow circle, shows the MPV Everest parked right outside Keppel in Singapore (this morning)… which is an odd place to park a SGD 265m vessel you have “delivered”. I mean you have literally delivered it, but normally in shipping terms it means to someone who has paid for it. Sooner or later Keppel is going to have to front up and admit they haven’t been paid for this. I am surprised that as a listed company they haven’t had to already, but they will also need to come up with a realistic impairment value here which will be interesting?
Because according to AIS the two UDS DSVs (Lichtenstein and Picasso) are also in lay-up effectively in Singapore. With three more being built having 0% utilisation on the first two in the fleet must be a minor concern?
And now into the mix comes the Jumeirah Offshore DSV being built at Huangpu… At least the yard here is being honest and admitting that the buyers have defaulted. But in the next breath you are told they will only sell at 100% of book value… And the vessel is c. 80% complete apparently: just enough to have purchased all the expensive long lead items but not enough to recover their value. This is a nice vessel on paper, 24 man Drass system, ST design, 250t crane, and a fairly generous power capacity etc.
In fact it is possibly as nice as the Vard DSV, speaking of unsold DSVs (although without the build quality one suspects), that will also only be sold at book value. So when looking at the size of the financial write down that these yards will have to take why not look there given Vard have just published their accounts? It is not completely clear how much value Vard are acribing to the vessel as they hold it in inventory with another vessel, but amazingly the write-off for all their vessels is only NOK 54m, or around $7m!
Given the discounts going around in offshore at the moment for completed offshore vessels, and the price Boskalis recently paid for the Nor vessels, to pretend that the Vard 801 only lost a maximum of $7m on it’s build cost (Vard use realisable value) is really unbelievable. Preposterous in fact. Surely a discount of 50% to cost would be needed to actually sell the vessel in this market? The scale of the loss here is massive for Vard, not quite a solvency event but not that far off and hence their desperation to hold an unrealistic value, but this is really a case where it is hard to see how the auditor has been objective here? There is enough market intelligence to suggest that a North Sea Class DSV that cost c. $150m to build would need to be marked down more than 5% to sell in this market? Good news for Keppel because they are audited by PWC as well I guess?
The fact is there are a host of very high-end DSVs mounting up in yards now with no realistic buyers and yet somehow we are meant to believe these vessels are worth close to what they cost to build? This despite the fact that UDS has made a business out of offering to commercially market very similar vessels and apart from a small job in Iran, and short-lived contract with a company without an office or phone, has managed to get close to zero utilisation. I am going to share with you an extremely insightful piece of economic thinking: if a boat isn’t being paid to work then it it isn’t worth a lot of money (generally speaking).
And still they come… three more from UDS alone… will they really be finished or cancelled like the Toisa vessel in China?
Quite where all these vessels end up is a great unkown. Only a maximum of 2 could ever end up in the North Sea given current demand levels and replacement requirements, and more likely one, and just as likely Technip and Subsea 7 just decide to replicate their last DSV new builds with export financing and attractive delivery terms… in which case none are worth the North Sea premium.
That means these vessels are likely to end up in the Middle East and Asia where day rates have never supported North Sea class DSVs for a host of very good economic and environmental reasons. So either there are a whole pile of USD 150m DSVs sitting around idle, with no buyers, that are all worth nearly exactly what they cost indefinitely, or someone is going to start losing some real money soon, even if the auditors allow them to pretend they won’t for a while longer.