Yesterday, MP Marine issued a statement that it had unilaterally terminated a contract for a high spec rig (scheduled to be delivered in Q4 F15) from PPL shipyard due to material breaches on the delivery of the contract. Specifically, cracks were found to be all three legs of the rigs after two rounds of testing.It s also going to claim back the initial 10% deposit of the contract through the legal process.
This morning, Sembcorp Marine, the parent of PPL shipyard issued a statement that PPL did not yet received the termination order and will considered MP Marine unilateral announcement as a breach of the contract and will take the necessary actions to reclaim it rights.
The way I see it is that this is NOT AN OVERNIGHT decision that surprised both sides. MP Marine could not have just paid up 10% of the contract and expect delivery by Q4 FY15. It must have missed at least one or more subsequent payments.With a market cap of just $70m and in such a difficult O&G environment with oil prices hovering around $US40, there is no way it could have proceed forward to take delivery of the rig when it is a newbie in the rig leasing business with zero customer.
Now the matter has gone to legal, it will be reasonable to expect a tussle but the chances of MP Marine getting reimbursed back for the initial 10% deposit is low at this late stage in the project.In the worse case, bankruptcy is not a impossible scenario. the CEO Sean Lee may have been too preoccupied with his new bride Vivian Hsu to keep his eyes on the crystal ball.This is evidenced by the more than 10% drop in MP Marine share price today.
My two cents worth!