Sembcorp Marine (SMM) has announced that it has reached agreement with BNP Paribas for a full and final amicable settlement of their original claim of US$50.7m arising from the forex derivatives transaction losses that stemmed from allegedly unauthorised trading carried out by SMM’s ex-finance chief. The claim has been settled for around US$30m.

The outstanding US$50.7m was previously recorded as a continent liability, while another separate charge of S$308.2m had been taken in its FY07 earnings for claims from other banks. Arising from this latest settlement, SMM will now take a charge of approximately US$30m in the fourth quarter of 2008. All outstanding liabilities have now been either provided or accounted for.

We are unable to determine the status of the outstanding disputes with the other banks, but we believe that SMM is unlikely to pursue the matter further. SMM is now in a position to move on from this issue. The latest charge amounts to some 2 cents per share, and will not have a significant effect on SMM’s book value per share. Furthermore, the market has already long ago factored in this liability, and is unlikely to further affect sentiment on the stock.

On account of this latest charge, our FY08 forecast is reduced to S$438.3m, from S$484.5m previously. We maintain our Hold recommendation on SMM, with target price at S$2.10, but we see no near term catalysts for the stock. Fundamentally, the demand for new rigs will remain muted in the current economic environment, with weak demand, crude oil prices below production breakeven and the inability for customers to secure financing for new orders.