Keppel and Sembcorp Shares Rally Ahead of Merger Deadline

By Ishika Mookerjee and Kyunghee Park (Bloomberg) —

The deadline for a transformative deal between Keppel Corp. and Sembcorp Marine Ltd. is just days away. 

Shares of both companies have surged on expectations they will decide on combining their offshore and marine businesses into a separate entity by the end of April, with some expecting further gains. Sembcorp Marine has jumped 52%, while Keppel is up 32% as the third-best performer on the benchmark Singapore index. 

“The shares could re-rate if the Sembcorp deal comes through,” said Terence Chua, an analyst at Phillip Securities Research Pte., referring to Keppel’s stock. “The value of the Keppel group without the offshore and marine business should increase as working capital will reduce, as will the conglomerate discount.”

Amid years of low crude prices, shipyards in Asia have been consolidating and cutting jobs as orders for oil rigs and production facilities slumped. Keppel and Sembcorp Marine entered into talks last year to combine and win more work in the renewable energy sector, which will cut their reliance on the fossil fuel market.

“It is a very complex transaction and it has taken a bit of time for both sides,” Loh Chin Hua, Keppel’s chief executive officer, said in a quarterly briefing call on Thursday. “We’re making good progress.”

Keppel’s stock climbed as much as 2% on Friday after the firm reported first-quarter revenues rose more than 9% to S$2.07 billion ($1.5 billion) from a year ago. Other than owning the world’s largest oil-rig builder, it’s also a property developer.

The company plans to distribute shares it receives from the merged company to shareholders. The offshore and marine unit contributed about a quarter of Keppel’s sales in 2021 but posted losses for a second straight year. Separately, it’s also looking to spin off a unit that owns rigs that have been built or are under construction where customers have canceled contracts on.

Sembcorp Marine has run losses for four straight years. 

Keppel is among Singapore’s state-linked firms restructuring to become asset-light or foray into new economy sectors. The company, founded in 1968, aims to simplify its business by 2030 and manage offshore energy projects and infrastructure assets.

© 2022 Bloomberg L.P.

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