Shipbuilders Like Keppel and Cosco Getting Hit

Published on Bloomberg News: Keppel, Cosco Drop as Shipbuilding, Offshore Orders Terminated

• Jan. 12 (Bloomberg) -- Keppel Corp. and Cosco Corp. Singapore Ltd. dropped in Singapore trading after customers terminated orders to build ships and offshore platforms, raising concern slowing demand will lead to more cancellations.
  
  Keppel, the world’s largest builder of oil rigs, fell as much as 7.3 percent to S$4.56 and traded at S$4.62 as of 10:31 a.m. local time, poised for its largest drop since Dec. 1. Cosco Singapore, a Chinese shipbuilder, slumped as much as 8.6 percent to 80 Singapore cents and last traded at 81 cents, set for the lowest close since Dec. 2.
  
  The worst global recession since the Great Depression has caused funds to dry up, making it difficult for shipping lines and oil explorers to arrange loans for new vessels and drilling equipment. Keppel said on Jan. 9 Scorpion Offshore Ltd. terminated a $405 million rig order, while Cosco Singapore said an Asian shipping line canceled two contracts.
  
  “Singapore yards, including Keppel, may continue to face potential cancellations from highly-geared rig owners” that have difficulty funding contracts out of future operating cashflows, Serene Lim, a Singapore-based analyst at DMG & Partners Securities, said in a report today.
  
  Opportunities are being explored for third parties to take over the building of a drilling rig after Scorpion canceled the order, unit Keppel Fels Ltd. said in a Jan. 9 statement. Talks are also on to terminate a contract with Lewek Shipping, Keppel said.
  
  Revised Terms
  
  Seadrill Jack-Ups Ltd. will continue with the construction of two rigs on “revised terms,” Keppel said without elaborating. Seadrill also revised terms of its contracts with SembCorp Marine Ltd., the companies said on Jan. 9. SembCorp Marine, the world’s second-largest rig-builder, declined 5.4 percent to S$1.74.
  
  Great Eastern Shipping Co., India’s second-biggest sea-cargo carrier, canceled orders for two of four vessels placed with Cosco last week. Cosco has dropped 16 percent this year after retreating 84 percent in 2008, the worst performer on the Straits Times Index. The Baltic Dry Index slumped a record 92 percent last year and last week traded at 872.
  
  “We expect more cancellations and deferments in the first half of 2009 as the Baltic Dry Index continues to hover below 1,000 levels,” Lim wrote.