SINGAPORE (May 30): UOB Kay Hian is maintaining its “sell” call on Sembcorp Marine (SMM) with 90 cents target even after successful delivery of the Highlander jack-up rig.

“Maintain ‘sell’ on two factors: High risk of additional provisions and rising gearing, which may require a cash call by SMM to shore up its balance sheet,” says lead analyst Andrew Chow.

On Friday, Hercules Offshore announced it had transferred ownership of the Hercules Highlander rig to Maersk Drilling. The rig has been ready for immediate delivery since early May 16.

As part of the agreement, Maersk Drilling will settle the outstanding US$190 million ($263 million) payment with SMM.

As confirmation, SMM made an early morning announcement that it would be delivering the rig to Maersk Highlander UK, a subsidiary of Maersk Drilling.

But Chow calls this “a fortunate turn of events for SMM”.

“The rig was originally flagged as at risk given the dire state of Hercules Offshore, and we had been concerned of a possible sale of the rig to others which would have resulted in additional provisions,” says Chow.

To highlight the dire straits it is in, Hercules in the same announcement, announced that it would also be filing for Chapter 11 (bankruptcy), the second time in 9 months.

“The delivery of the rig will provide much needed cash inflow to SMM, putting management's guidance of net cash inflow of $1.3 billion on track,” adds Chow.

UOB has re-adjusted SMM’s asset impairments to $663 million, excluding the Highlander rig.

At 12.54pm, SMM shares are up 0.96% at $1.58.