Singapore Shipyards Benefit from China’s Shipbuilding Woes


Singapore’s Keppel Corp Ltd and Sembcorp Marine Ltd, the world’s top offshore rig-makers, stand to 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, price discounts and help with financing.

That may be changing after Beijing pledged to cut credit to industries plagued with 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 Jon Windham, Barclays head of Asia industrials equity research.

Keppel reports quarterly results on Thursday, while Sembcorp Marine reports on Aug. 1.

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 win more orders for jackup rigs than Singapore’s yards for a second year in a row. Rongsheng mainly builds dry bulk carriers and only set up its offshore rig arm in 2012.

Rongsheng could now 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, Beijing this month 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 Kristy Fong, investment manager at Aberdeen Asset Management Asia Ltd.

“But they will lead to fewer speculative orders and better quality orders for the industry in general,” said Fong, whose company is Keppel’s second-largest shareholder with a 5.36 percent stake, after Temasek Holdings Pte. Ltd.

Keppel delivered five rigs in the first quarter of the year, and seven in the second quarter, out of a record number of 20 rigs it plans to deliver for 2013. Nine of the rigs were delivered ahead of schedule, company data showed.

The quickened pace in rig delivery is expected to bring higher margins, analysts said. In the last quarter the company’s operating margin stood at 14.4 percent, down from 18.8 percent in 2012.

On the global orderbook for mobile drilling units, which include jackups, semi-submersibles, drillships, drilling barges and tenders, China led with a total of 56 units on order, followed by South Korea’s 55 and Singapore’s 42 as of early June, data from Clarkson Research Services showed.







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