Keppel, Sembcorp Marine agree to explore potential combination of offshore and marine units

SINGAPORE: Keppel Corp and Sembcorp Marine have agreed to explore a potential tie-up that would see them combine their struggling offshore and marine (O&M) businesses after years of losses in an industry downturn.

A deal would see Keppel spin off the new business into a listed entity and ultimately exit the legacy business, with Singapore state investor Temasek becoming the largest shareholder in the combined company.

Keppel’s O&M unit ranks as one of the world’s largest offshore oil rig builders. 

“The objective of these discussions is to create a stronger combined entity and sustainable value over the long term for Keppel O&M and Sembcorp Marine and their respective stakeholders, in response to dramatic changes in the global offshore and marine engineering and energy sectors,” the companies said in a joint press release on Thursday (Jun 24).

Earlier, Reuters cited sources as saying that the companies, which both count Temasek Holdings as their largest shareholder, were set to begin talks to explore combining their O&M businesses, which have been hit by years of oversupply and sustained weakness in oil prices.

READ: Commentary: Keppel’s exit of rig business may have bigger implications for Singapore's offshore and marine sector

Keppel and Sembcorp Marine said they will “undertake mutual due diligence and discuss the terms of the potential combination, which is expected to take several months".

If a deal proceeds, the combined entity will be a listed company, and Sembcorp Marine's shareholders will hold shares in it. Keppel will receive shares in the combined unit and a cash consideration of up to S$500 million.

Keppel said it plans to distribute to shareholders the combined entity shares that it will receive.

Keppel and Sembcorp Marine own a network of shipyards in Singapore and overseas, including in Brazil, and employ thousands of workers.

Markets have been expecting a much-needed consolidation in the rig-building sector as companies in the shipbuilding and marine sectors in markets such as South Korea and China have already joined forces amid a weak sector outlook.

“Consolidation is needed simply because of competition, and the need for bigger working capital to take on new and bigger projects,” said Joel Ng at KGI Securities.

Sembcorp Marine also announced a S$1.5 billion fully committed rights issue.

Startree Investment Pte, a fully-owned subsidiary of Temasek, has committed to subscribing up to 67 per cent of the rights issue while DBS is underwriting the remainder, Sembcorp Marine said.

The liquidity from the proposed rights issue will be “vital in fortifying our financial position”, said Wong Weng Sun, president and CEO of Sembcorp Marine.

Keppel and Sembcorp Marine had earlier requested in separate stock exchange filings that their shares be placed on trading halts pending announcements.

Both companies said in the joint press release that they will provide further updates in due course and emphasised that discussions are at a preliminary stage and that "there is no certainty that the potential combination will take place".