Cosco stock gets a boost from finalising of rig deals
The counter closed at $1.97, four cents - or 2.1% - higher yesterday
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The counter closed at $1.97, four cents - or 2.1% - higher yesterday
By JOYCE HOOI
01 June 2011
Investors breathed a little bit more easily yesterday on news that Cosco Corporation (Singapore) Limited’s contracts for two drilling rigs with Sevan Drilling had been made effective.
Following Cosco Corporation (S)’s announcement on Monday afternoon that contracts for two drilling rigs at US$525 million apiece had been made formally effective, the counter closed at $1.97, four cents - or 2.1 per cent - higher in trading yesterday.
While analysts kept a wary eye on the potential fallout from the impending liquidity woes of Sevan Marine - Sevan Drilling’s parent company - the finalising of the rig contracts was cause for cheer.
Adding to the buoyancy about Cosco Corporation (S)’s prospects was its announcement on Monday that a US$114 million deal for the building of a topside module for ATP Oil & Gas (UK) had been made effective as well.
‘The award of additional work on the Octabuoy topside modules underscores the confidence ATP has in Cosco’s ability to deliver and we are heartened on this front. The firming up of the US$1.05 billion contract for the two Sevan 650 drilling units . . . has effectively dispelled worries that the orders will fall through,’ Nicholas Low, an analyst with Phillip Securities Research, said in a report yesterday.
‘With these contracts, Cosco’s year-to-date order wins have been lifted to approximately US$1.8 billion out of which US$1.6 billion is from rig construction.’
Mr. Low maintained his ‘hold’ rating on the stock, with a target price of $2.18.
Cosco Corporation (S)’s stock received a drubbing in the market in recent weeks over wave after wave of negative news associated with it - from reports raising questions about the corporate governance of its parent company to Sevan Marine’s jettisoned rights issue and subsequent need for restructuring.
Yesterday, however, Kim Eng Research analyst Rohan Suppiah upgraded the stock to a ‘buy’.
‘Cosco’s share price has pulled back significantly since we downgraded the stock to ‘hold’ early this month on weak results and negative news flow. Consequently, the stock now provides 26 per cent upside to our target price of $2.43,’ said Mr. Suppiah in a report yesterday.
‘With the pullback in Cosco’s share price, the resulting 26 per cent upside to our target of $2.43 justifies a ‘buy’ call on the stock.’
Still up in the air, however, are the options for another two Sevan 650 drilling units worth US$1.05 billion that have not been exercised.
‘Given the publicity surrounding the Sevan Marine saga, we believe that there is a high possibility that the options will not be exercised, as it may prove difficult to raise further equity and debt to finance additional rigs,’ said Phillip’s Mr. Low.
He noted, however, that Cosco does not have any vessel-building contract with Sevan Marine itself in its current orderbook.
Any fallout from the restructuring of Sevan Marine could be tempered by the possibility of Sevan Drilling terminating the cross default clauses between itself and Sevan Marine.
In addition, reports that a Norwegian investor, Jens Ulltveit-Moe, has bought 26.5 million shares - equivalent to a 5 per cent stake - in Sevan Marine could bode well for the firm’s restructuring efforts.