Vard: Vard has terminated shipbuilding contracts for two PSVs after customer E.R. Offshore filed for bankruptcy. The vessels are being constructed in Vietnam and are due for delivery in 3Q15 and 2Q16.
Maybank-KE estimates the PSVs to be valued at NOK300m (US$37m) each, with 10% prepayment made for one of the vessels. Management however expects to recover the remaining construction costs by selling both vessels.
Separately, Upstream had earlier reported that Island offshore has requested Vard to postpone deliveries of three PSVs and a OSCV, worth about NOK2.2-2.4b (US$268-292m), by six months. These vessels were due to be delivered in 2015 and 2016
The above developments reaffirm demand weakness in the offshore sector and the vulnerability of small players like E.R. Offshore, while bigger players like Island Offshore have the balance-sheet depth to delay deliveries.
It is also not surprising that most affected vessels are PSVs given oversupply of this asset class even before the recent oil rout. Vard’s net orderbook of NOK17.7b at end-2014 comprised 39 vessels, of which 13 are PSVs. Maybank-KE do not rule out more cancellations ahead.
Overall, Maybank-KE maintains Hold with a TP of $0.58 (previous $0.60).
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