COSCO

COSCO: Daiwa says no light at the end of tunnel yet, as one key client has extended a stop-work order on its deepwater drilling rig, pending talks on a potential cancellation of the US$525m newbuild contract. While there has been some positive news, being the US$230m of new orders, the former would likely weigh on Cosco over the next 12 months. The rig was supposed to have been delivered in Apr’14, but was deferred to late 4Q14 due to Cosco’s sub-contractors encountering delays in the supply of critical equipment. More importantly, the client, Sevan Drilling, has not been able to secure employment for the rig amid a downturn in demand for deepwater and ultra deepwater drilling rigs. Sevan had paid 20% of the contract price, and a cancellation of the contract would give Sevan the right to recoup around US$105m in instalments paid to Cosco Daiwa reiterates Sell with TP slightly increased to $0.56 from $0.54