Barge sale may help reduce debt. According to an article by upstreamonline ("CUEL buys Swiber barge", 8 Apr 09), Thai contractor CUEL is planning to buy Swiber's derrick pipelay barge, Swiber Chai, after signing a sale and purchase agreement with Swiber Holdings (Swiber). If CUEL buys the barge, it will reduce Swiber's leverage ratio if the group channels the proceeds to pay off some of its debt. As seen by recent events (ICON Capital taking a 51% stake in Victorious LLC, Swiber selling interest in OBT Holdings), the group has been trying to increase its cashflow

1Q09 earnings may be impacted by vessel delays. Although the above is positive news, it is worth noting that 1Q09 earnings may continue to feel the impact of previous delays in vessel deliveries. There was an unexpected delay in the delivery of two vessels, Swiber Concorde (pipelay barge) and Swiber Supporter (dive-support work barge) which hugely impacted 4Q08 earnings, and though both have been delivered (Supporter in Jan 09 and Concorde in Feb 09), higher operating costs and the delay in work schedule may affect earnings.

Net gearing stands at 1x. The group's net debt-to-equity ratio stands at 1x as of 31 Dec 08 but management expects it to fall with the delivery of vessels under its sales and leaseback transactions. It is therefore imperative that deliveries of vessels under the sales and leaseback agreement are on time so as not to impact its cashflow (out of 15 sale and leaseback deals totaling US$408m, eight have been delivered). To recap, the group has a S$15m bond maturing in 8 May 09, on top of its existing bank loans (ST: US$68.5m, LT: US$57.7m as of 31 Dec 08). There are also remaining medium term notes that will mature in 2010 and 2011.

Downgrading to SELL. We are keeping our FY09/10 estimates and fair value estimate of S$0.35 but are downgrading the stock to a SELL purely based on valuations. At current price, the market appears to have run ahead of Swiber's fundamentals which have benefited from the recent rally in oil and gas stocks. As mentioned in our previous report, we will re-look our valuation peg when the firm demonstrates margins stability.