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Offshore Support Journal

COMMENT: Borr Drilling and Seacor – how to clear berth space at any price

Thu 25 Jan 2018

COMMENT: Borr Drilling and Seacor – how to clear berth space at any price
James Frew: “Seacor can be expected to take the lion’s share of the profits from its JV with Cosco”

An innovative deal to finance eight offshore support vessels shows that for canny operators, there are bargains to be had at yards keen to secure what business they can, writes James Frew*

Towards the end of last year, Borr Drilling’s transaction at Singapore’s PPL shipyard raised eyebrows when the ambitious start-up took on nine premium jack-up rigs with the yard providing soft finance and extremely generous delivery schedules.

Many market commentators noted how this transaction could provide a template for other expansionary owners and jilted yards in the rig market, but Seacor Marine has taken this model one step further and applied the same methodology to the offshore support vessel market.

On the face of it, Seacor’s deal to form a joint venture (JV) with COSCO Shipping Group to take delivery of eight new UT771 vessels (with marginally different specifications) appears generous to the yard.

On average the vessels work out at about US$20M each, which is probably somewhat under the nominal newbuilding price for each asset but somewhere above the actual cost of construction.

If this was all there was to it, then the yard would be left with a book loss but actually wouldn’t have lost hard cash on the deal.

As ever, the devil is in the detail, which of course remains confidential. What is known is that both Seacor and COSCO have chipped in around US$3M of equity each per vessel, with the remaining 70% being financed with debt from unknown sources.

However, MSI suspects that a) the deal is structured such that Seacor takes the lion’s share of profits, at least until vessel earnings are well above breakeven and b) that the financing is being provided on concessional terms.

In other words, we think that Seacor may well be getting a steal.

However, we suspect the real value of this deal lies in the risk limitation. A press release about the deal went out of its way to emphasise that the financier has no recourse to Seacor itself, and that the JV can take delivery of the vessels between six and 18 months after the nominal delivery dates.

In other words, for US$24M in equity, Seacor is getting access to a stake in eight modern, high-quality platform supply vessels (PSVs) on extremely generous terms with the maximum downside being US$3M plus any losses from operations.

For all we know the deal may include a minimum opex contribution from COSCO as well.

MSI is firmly towards the bearish end of the spectrum in terms of our outlook for PSVs. We think earnings will remain below opex for the remainder of 2018 and into 2019 at least.

However, this deal shows that there are still bargains to be had.

Few owners have the war chest and global coverage of Seacor, but in our view the deal is a clear reminder that even in the most bombed-out sectors there are still bargains to be had by owners able to structure deals to capitalise on yard distress.

*James Frew is director of consultancy at MSI. He covers the container shipping and offshore oil and gas markets and takes a lead role in developing MSI’s suite of models covering the offshore markets in co-operation with offshore partner Infield Systems.

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