Jul 19, 2013

    Singapore rig-makers may gain from China peers' pain

    SINGAPORE'S Keppel Corp and Sembcorp Marine, the world's top offshore-rig makers, may be among the winners from Beijing's moves to tighten credit amid a downturn at China's shipyards.

    The two companies have been under mounting pressure from Chinese yards offering generous payment terms, discounts and help with financing.

    That may be changing after Beijing pledged to cut credit to industries plagued by overcapacity, and China Rongsheng Heavy Industries Group - the country's largest private shipbuilder - fell into financial trouble.

    "Something like this will absolutely make everyone double-check and say, 'Am I really sure I want to order from anywhere but the best yard?'" said Mr Jon Windham, Barclays head of Asia industrials equity research.

    A number of Chinese shipyards have tried their hand at offshore-equipment manufacturing as their traditional shipbuilding businesses have slowed, and are on their way to winning more orders for jack-up rigs than Singapore's yards for a second year in a row.

    Rongsheng mainly builds dry-bulk carriers and set up its offshore-rig arm only last year.

    The company could become the biggest casualty of a local shipbuilding industry suffering from overcapacity and shrinking orders amid a global shipping downturn. New ship orders for Chinese builders fell by about half last year.

    Within hours of Rongsheng's appeal for help from the Chinese government this month, Beijing vowed to harness its financial sector to help bring about an orderly closure of some factories in industries plagued by overcapacity.

    The crunch at Chinese shipyards will strengthen the negotiating positions of Keppel Corp and Sembcorp Marine with customers who quote Chinese yards' terms to negotiate for better prices.

    "The troubles in China's shipbuilding industry won't necessarily translate into higher margins or more order wins for Singapore's two yards, since they have always been selective with the contracts they bid for," said Ms Kristy Fong, investment manager at Aberdeen Asset Management Asia.

    "But they will lead to fewer speculative orders and better-quality orders for the industry in general," said Ms Fong, whose company is Keppel's second-largest shareholder - with a 5.36 per cent stake - after Temasek Holdings.