Why Sembcorp Marine's junked Oro Negro contracts won't affect its earnings

Profits from its five rig building contracts have long been reversed out since 2015.

Sembcorp Marine's recently disposed rigs from a contract with Oro Negro fell 35% from the original price of US$209m to $185.5m (US$136m).

However, according to UOB Kay Hian, profits on its five rig building contracts have long been reversed out since Q3 in 2015. Profits from Perisai Petroleum have been reversed out 2x and from Oro Negro 3x.

Sembcorp Marine also stopped revenue recognition from the projects.

"As such, we do not expect any bottom line impact from the contract termination," UOB Kay Hian analyst Andrew Chow said.

The firm may also have further decreased the rig value when it provided another $382m (US$280m) for its problematic contracts in Q4 in 2015.

As a result, Sembcorp Marine could sell its rigs without taking any more losses. Other similar transactions also saw discounts of 20-45% from the original price, UOB Kay Hian said.

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