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Energy

Sembcorp Marine's losses bode ill for Singaporean shipbuilding

Rig builder log warns of more pandemic pain as rival Keppel exits the industry

Sembcorp Marine on Tuesday reported a net loss of $440 million for 2020 due to largely to the coronavirus pandemic.    © Reuters

SINGAPORE -- One of Singapore's biggest offshore rig builders has reported a fourfold surge in annual net losses and warns of further pain ahead as the city-state's shipbuilding sector struggles to overcome challenges from the coronavirus pandemic.

Sembcorp Marine on Tuesday reported a net loss of 582 million Singapore dollars ($440 million) for 2020, compared to a SG$137 million loss the previous year.

"2020 has definitely been a very challenging year. The economic impact of the COVID-19 pandemic, coming on top of structural changes in the oil and gas sector, further dampened oil and energy consumption," Sembcorp Marine President and CEO Wong Weng Sun said at the results briefing.

"Despite the present trajectory of a gradual economic recovery, it remains premature to predict a strong and sustainable recovery for the industry," Wong continued, adding that his company "expects losses to continue."

Sembcorp Marine's former parent, Sembcorp Industries, also reported a net loss on Tuesday of SG$997 million, compared to a profit of SG$247 million in 2019. The conglomerate blamed the loss primarily on the impact of troubles at Sembcorp Marine, which was spun off in September.

Sembcorp Marine's revenue for the year dropped 48% to SG$1.51 billion, due to delays in the execution and completion of existing projects in its rig and ship-repair businesses. While no projects were canceled, "the pandemic-led slowdown resulted in a push-out of delivery dates for most ongoing projects, with some rescheduled by as much as 12 months," the company said.

Singapore's marine industry employs thousands of migrant workers, but most were unable to work for months last year due to a massive coronavirus outbreak in their dormitories. Sembcorp Marine was forced to stop production from April and was only able to resume gradually from July.

The bleak results come as Keppel Corp., another local conglomerate, announced its exit from the offshore rig business late last month. Keppel's offshore and marine unit, Keppel O&M, marked a net loss of SG$1.19 billion in 2020, leaving the conglomerate with an overall net loss of SG$506 million.

For decades, Singapore has developed its shipbuilding industry to make the most of the city-state's status as a marine shipping hub, not only building ships but also offering repair and other services for vessels. Offshore rig building was an extension of the shipbuilding industry, and in the past it grew in tandem with growing oil demand.

But that demand has been weakening in recent years amid the global shift to cleaner forms of energy. The COVID-19 pandemic dealt an additional blow to oil demand, particularly with large numbers of airplanes grounded around the world. These changes, along with stiff competition from South Korean and Chinese shipbuilders, are putting pressure on Singapore's offshore players to restructure.

Sembcorp Marine's demerger from Sembcorp Industries last year was one step in that direction. The demerger came with a SG$2.1 billion rights issue backed by state investor Temasek Holdings, which strengthened the marine company's balance sheet.

Keppel, on the other hand, has decided it will exit the offshore rig business after completing rigs under construction, and focus on more promising areas, such as offshore wind power. The restructured unit will be "much slimmer than the Keppel O&M of today, with a significantly reduced head count, focusing on higher-value-adding work as a developer and integrator," Keppel CEO Loh Chin Hua said during the results briefing.

While the global economy is starting to recover, experts say the offshore rig industry will continue to struggle.

"The sector outlook for 2021 is not bright," Adrian Loh, an analyst at Singapore brokerage UOB Kay Hian, said in a recent report, noting that 2 in 5 rigs remained idle. Global coronavirus vaccinations will help oil demand from the transport industry to recover, but the growing adoption of electric vehicles will have an adverse impact on demand, according to Loh.

Sembcorp Marine CEO Wong said on Tuesday that his company will focus more on cleaner energy projects, such as vessels for installing turbines at offshore wind farms, to capture opportunities arising from the transition to sustainable energy.

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