Keppel and Sembcorp Marine Reach Merger Deal, Creating Rig Building and Renewables Giant

By Kyunghee Park (Bloomberg) —

Sembcorp Marine Ltd. has agreed to merge with Keppel Corp.’s subsidiary in a deal that will create the world’s biggest builder of oil rigs and push the business further into renewables and alternative energy solutions.

Sembcorp Marine and Keppel Offshore & Marine will be wholly owned by a new holding entity, which will be listed on the Singapore stock exchange, the two companies said in a joint statement Wednesday. A shareholder meeting is expected to be held in the fourth quarter to seek approval for the transaction, which is subject to various regulatory sign offs. 

“The signing of a win-win agreement on the proposed combination of Keppel O&M and Sembcorp Marine marks a strategic milestone for the offshore and marine sector,” Keppel Chief Executive Officer Loh Chin Hua said. “It brings together two leading O&M companies in Singapore to create a stronger player that can realize synergies and compete more effectively amidst the energy transition.”

Yards in Singapore were among the worst hit anywhere in the world as the pandemic made it difficult to get skilled manpower from overseas due to strict Covid-19 border restrictions. Last year, Sembcorp Marine reported its biggest loss since at least 1990 after setting aside provisions for labor-related expenses and costs pertaining to existing projects that were delayed due to Covid. 

Builders of vessels and rigs globally have been restructuring to stay afloat as orders slumped following weaker crude oil prices in 2014. Thousands of jobs have been culled and shipyards have been shuttered as oil majors such as Shell Plc and Exxon Mobil Corp. reduced spending on drilling and other offshore equipment. 

Trading of Keppel and Sembcorp Marine shares was suspended Wednesday.

Wind, Hydrogen

The merger will help the resulting company seek opportunities not just in the oil and gas sector, but also in renewable energies, such as offshore wind and alternative sources including hydrogen, according to the statement.

“Growing commitments by governments and companies around the world seeking to achieve net zero carbon emissions are driving increasing demand for renewable and clean energy solutions,” the companies said. “These include areas such as offshore wind, hydrogen and ammonia, in which both Keppel O&M and Sembcorp Marine have built their respective capabilities and track records in the past few years.”

Under the agreement, Keppel will receive S$500 million ($363 million) from Keppel O&M and a 56% share of the new company on a post-issue basis. Keppel will distribute 46% of the combined entity’s shares in-specie to its shareholders and retain a 10% stake. Keppel O&M has entered into a commitment letter with DBS Group Holdings Ltd. to raise the funds.

Keppel will later decide what it will do with the 10% stake in the new company, including options such as a distribution or sale, Loh said at a briefing with analysts and media. The company plans to transform itself as a developer, owner and operator of energy related assets rather than being a builder, he said. 

Sembcorp Marine will hold a 44% interest in the new company. Its investors will exchange their shares in Sembcorp Marine for stock in the combined entity on a one-for-one basis, and Sembcorp Marine will transfer its listing status on the mainboard of the Singapore exchange to the combined entity.

Order Book

Figures in Wednesday’s presentation show the combined entity will have revenue of S$3.9 billion based on 2021 figures, a net loss of S$1.3 billion and an order book of S$6.4 billion.

The transaction has been some time in the works, with Sembcorp Marine and Keppel signing a non-binding memorandum of understanding in June 2021 to start exclusive talks to combine their oil-rig businesses.  

Keppel also agreed with Baluran Ltd. and Kyanite Investment Holdings Pte, an indirect wholly owned subsidiary of Temasek Holdings Pte, to sell Keppel O&M’s rigs that have been built and those already under construction to a new company. Keppel will own 10% of the new entity, while Baluran will hold 74.9% and Kyanite 15.1%. 

Keppel O&M used to be Keppel’s biggest contributor to earnings until the decline in rig orders saw the group’s property business take that mantle. Keppel said last year that it will exit the rig-building business and focus more on providing solutions for energy projects. 

Sembcorp Marine obtained S$2.1 billion through a sale of new shares in 2020 that saw its biggest shareholder change to Temasek, Singapore’s state investment firm, from Sembcorp Industries Ltd. The rig-builder raised another S$1.5 billion last year.  

© 2022 Bloomberg L.P.

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