SINGAPORE (June 14): UOB Kay Hian is maintaining its “hold” call on Keppel Corp with $6.40 target despite market talk that the five-year contract for TS Jasper, currently under construction at Keppel, might be terminated.

The rig, ordered by Falcon Energy for US$500 million ($677 million), is currently chartered to Xcite Energy and is due for delivery in 2017.

However, Xcite is at risk of not being able to secure funding for its Bentley field development, potentially jeopardising the rig contract. It reported in its 1Q16 report having US$14 million ($19 million) in cash on its balance sheet, with a US$139 million bond due June 30. Xcite is currently trying to negotiate terms with its bondholders, on top of trying to finalise rig contract terms for TS Jasper.

“No financial impact for now. However, one should anticipate a possible deferral of TS Jasper should the situation at Xcite Energy turn dire. Given that delivery is at least a year away, there should be minimal cancellation risk (for now) from this order as the oil market improves,” says lead analyst Foo Zhiwei in a Tuesday note.

But with no foreseeable improvement to its O&M business, Keppel’s share price is expected to have lacklustre performance.

“Earnings performance will continue to be driven by its Property business, which remains robust on the back of strong housing demand from China and Vietnam. It is however unable to offset the decline from the O&M business,” says Foo.

As at 1.12pm, shares of Keppel are down 0.74% at $5.36.