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Business deals

Temasek’s $3bn Keppel deal spurs talk of industry consolidation

Singapore’s state investment company plans to buy 51% in local oil rig maker

Keppel’s main businesses range from offshore rig-building to property and infrastructure development.   © Reuters

SINGAPORE -- Singapore's state investment company Temasek Holdings is planning to acquire 51% of local conglomerate Keppel Corp., the companies said Monday, in a move that analysts said was to restructure the major offshore rig builder which has been facing a difficult operating environment.

Temasek currently owns 20.45% of Keppel. It now plans to buy an additional 30.55% stake from existing shareholders for 7.35 Singapore dollars per share, a premium of 26% over the last traded price. This translates into a total investment of about SG$4 billion ($3 billion).

Temasek "intends to work with the board of directors of [Keppel] in undertaking a comprehensive strategic review of its businesses with the objective of creating sustainable value for all shareholders," it said in a statement. The strategic review may result in Keppel refocusing on and strengthening certain businesses, and/or potential corporate actions including acquisitions, disposals and mergers, according to the statement.

"The offer reflects our view that there is inherent long-term value in Keppel's businesses, notwithstanding the challenges presented by the current business and economic outlook," the statement quoted Tan Chong Lee, president of Temasek International, as saying.

The deal has sparked speculation about a consolidation of Keppel's rig business with that of another state-backed player Sembcorp Marine. The share prices of Sembcorp Marine and its parent Sembcorp Industries rose more than 10% on Monday after Temasek's announcement.

Joel Ng, an analyst at KGI Securities in Singapore, said that Temasek's move may be "a prelude to giving Temasek more flexibility to consolidate Singapore's offshore and marine industry." He noted these companies face "a significant global overcapacity" and competition is expected to increase with the industry consolidation in China and South Korea.

He also pointed out that given the high employment in the offshore rig industry and connections to local businesses, there are good reasons for Temasek to support Keppel as well as Sembcorp.

Keppel's main businesses range from offshore rig-building to property and infrastructure development. It had been struggling due to a slump in the rig business stemming from weak oil prices.

Last year's revenue of SG$5.9 billion and net profit of SG$944 million were less than half of its peak in 2012. This year, Keppel's net profit for the nine months through September was SG$515 million, down 37% from the same period a year ago.

In Monday's statement, Temasek said that Keppel will remain listed on the Singapore Exchange after the deal.

Trading of Keppel's shares was halted this morning at the Singapore Exchange pending the announcement of this deal.

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