Swissco

Swissco: may be in focus after announcing move into higher value oil rig construction. Swissco has taken a 46.5% stake in SPV Rockwood Asset, to enter into EPC contracts for oil rigs. Its JV partners are Golden Arch (45.3%) and Pulau Investments (8.2%). In conjunction, Rockwoods has secured an order from Jiangsu Rongsheng Heavy Indsutries and Rongsheng Offshore & Marine, for the construction of an oil rig, with an option to construct a second oil rig. Swissco will fund its portion of invmt in Rockwood amounting to US$8.2m through a convertible loan from Golden Arch. The loan can be repaid via issuance of 35.6m Swissco shares (8.2% dilution) at issue price of $0.2835 per share (7.0% premium to last close at $0.265), or at an interest rate of 8% pa. The venture marks a milestone for Swissco, which embodies the progression of Swissco as an offshore support vessel player, into the higher value rig construction segment. Nevertheless, newsflow suggests that Chinese yards such as China Rongsheng have been compressing rig prices to grow market share. Execution is therefore key for Swissco’s new JV, as lower contract prices and scaling the learning curve could entail lower margins initially. Swissco trades at 7.0x P/E, 1.0x P/B.