Proposed combination is based on a 50:50 enterprise value ratio between Keppel Offshore & Marine (Keppel O&M) and Sembcorp Marine
Keppel Corp Ltd and Sembcorp Marine Ltd entered into ’definitive agreements’ today for the proposed combination of Keppel Offshore & Marine Ltd and Sembcorp Marine.
“The proposed combination is set to create a business “focused on offshore renewables, new energy and cleaner solutions in the offshore and marine sector,” a statement from the two companies said.
“The proposed combination, which follows the signing of a memorandum of understanding between Keppel and Sembcorp Marine on 24 June 2021, will bring together the … engineering capabilities, well-established track records and reputations for quality and reliability of the two companies with complementary competencies and operations. The combined entity will be well-positioned to capture opportunities arising from decarbonisation in the oil and gas sector and from the global energy transition towards renewables, particularly in the areas of offshore wind, and new energy sources such as hydrogen and ammonia.”
The groups said after taking into account the respective capital structures of the two companies and the S$500M (US$362M) in cash that Keppel O&M will pay to Keppel and other adjustments, the agreed equity value exchange ratio will result in Keppel and its shareholders owning 56% of the Combined Entity and Sembcorp Marine shareholders owning 44% on completion.
Keppel O&M’s legacy rigs and associated receivables will not be part of the merger and will be sold to a separate Asset Co that will be 90%-owned by other investors, with Keppel holding a 10% stake.
Keppel O&M and Sembcorp Marine will preserve operational strength by retaining and attracting O&M engineering talent while engaging with workplace unions to address labour considerations related to the combined entity.
The merger is subject to various regulatory approvals and is expected to be put to respective shareholders for approval in Q4 2022.
22 April
In a quarterly earnings call, Keppel Corp chief executive Loh Chin Hua said his company’s Keppel Offshore & Marine (Keppel O&M) division and Sembcorp Marine, both Singaporean state-backed entities, had made progress towards finalising a merger agreement and sale of Keppel O&M’s legacy assets to a newly formed asset management company.
“We are making good progress. It is a very complex transaction, and it has taken a bit of time for both sides,” Mr Hua said.
Citing increased activity in the rigs market and improved utilisation rates, Mr Hua said the company is confident it can monetise its legacy assets over the next three to five years.
“Realistically, bareboat charter is probably very likely now. We may have a couple of opportunistic transactions in terms of sales. But because conditions are improving – we cannot predict the future, but based on what we see today – we believe whatever provisions we have taken are more than adequate,” Mr Hua said.
1 April 2022
Keppel Corp and Sembcorp Marine have offered an update to shareholders around progress on the proposed merger between the two state-backed companies in Singapore in a joint statement, saying more time is needed for due diligence, hammering out the transaction’s terms and executing the requisite documentation to allow the merger to progress.
“Both parties are committed to continue with exclusive negotiations and work towards a definitive agreement by 30 April 2022,” the joint statement said.
Keppel also said it had made ’significant progress’ on selling Keppel O&M’s legacy rigs to a separate entity, majority owned by external investors, but designed for the express purpose of selling the assets.
“As previously announced, this Asset Co transaction and the Proposed Combination will be inter-conditional and are being pursued concurrently,” the statement said.
June 2021
If Keppel’s new business arrangements with Sembcorp Marine are completed, the combined entity will be a listed entity and Keppel will receive shares and a cash consideration of up to S$500M (US$371M). Keppel intends to distribute to its shareholders all the Combined Entity shares it receives, according to a joint statement released by the two compaines.
The new entity “will be better positioned to capitalise on the energy transition, including areas such as offshore wind, and address the opportunities and challenges in the evolving and consolidating offshore and marine industry,” the joint statement said.
Keppel’s restructuring and move into renewables
In January 2021, Keppel decided to move its offshore and marine division out of oil and gas and to focus on renewables.
As part of the transformation, Keppel O&M’s business is undergoing a restructuring and being broken into three parts: a Rig Co and a Development Co (Dev Co), which will be transient entities created to hold approximately S$2.9Bn (US$2.2Bn) worth of completed and uncompleted rig assets; and an Operating Co (Op Co), comprising the rest of Keppel O&M, which will be transformed into an asset-light and people-light developer and integrator of offshore energy and infrastructure assets.
Keppel O&M’s completed rigs have been placed under the Rig Co, which will put the completed rigs to work, or sell them if there are suitable opportunities. A dedicated team will be appointed to support the Rig Co’s chartering and marketing activities, but the setup will be a transitional arrangement, according to Keppel.
As the oil market recovers, utilisation and day rates improve, and the rigs generate steady cash flow, the Rig Co will sell the rigs or collaborate with Keppel Capital to seek funding from external investors. A cash flow-generating Rig Co can be monetised or spun off in the future. The Rig Co is expected to be self-sustaining and only require limited initial funding to maintain the rigs.
Uncompleted rigs come under the Dev Co. The Dev Co will be wound up once the rigs have been completed and delivered to customers, or transferred to the Rig Co, where they will be put to work or sold. The Dev Co requires some initial funding from Keppel, after which it is expected to operate independently.
At the time of the announcement, the Rig Co and Dev Co were collectively expected to require about S$500M (US$371M) in net funding, mainly for the latter to complete the rigs. This will be provided progressively by Keppel Corporation and repaid over time.
The Op Co, comprising the rest of Keppel O&M, will progressively transition to a developer and integrator role, focusing on design, engineering and procurement.
Fabrication work will be subcontracted to contractors, including other yards. Keppel O&M’s yard operations will be streamlined, including repurposing or divesting part of its global network of yards. At the same time, the Op Co will invest in capability building as it seizes new opportunities.
Keppel’s second, ’inter-conditional’ MoU with state-owned Kyanite and further potential restructuring
Simultaneous to its first MoU with Sembcorp Marine, Keppel has signed a non-binding MoU with Kyanite Investment Holdings Pte Ltd (Kyanite), a wholly owned subsidiary of Singapore’s sovereign wealth fund Temasek. The MoU concerns the sale of Keppel O&M’s legacy rigs, completed and uncompleted rigs and “associated receivables” to a separate entity, which would be majority owned by external investors.
The two proposed transactions will be “inter-conditional and pursued concurrently”, the joint statement from Keppel and Sembcorp Marine said.
Under the second MOU, Keppel O&M’s legacy rigs and associated receivables will be sold to a separate asset company and Keppel will retain not more than a 20% stake as an investment. Yet to be chosen external investors, which Kyanite intends to procure, will hold the remaining balance of company shares of at least 80%. Keppel will receive the consideration for the legacy rigs and associated receivables substantially in the form of credit notes.
The external investors will provide capital which can be used for finishing these uncompleted rigs, which would no longer be funded by Keppel.
Under the MoU between Keppel and Sembcorp Marine, it is envisaged that Keppel and the newly combined entity will enter into a strategic partnership, pursuant to which Keppel will hold 50% of a 50-50 joint venture that will be established between Keppel and the new business.
The arrangement “would allow Keppel to continue accessing Keppel O&M’s capabilities required for its projects, on terms to be agreed,” the statement said.
The proposed transactions are expected to be earnings accretive to Keppel Corporation for the current financial year on a pro forma basis. However, the joint statement said there is no anticipation that any transaction, if agreed, will complete this year.
“The proposed transactions are subject to among others, satisfactory due diligence, negotiation and execution of definitive agreements, relevant regulatory approvals and shareholders’ approval of the respective parties. There is no guarantee that a final agreement will be reached or that any transaction will materialise,” the statement said.
“The transactions are in line with Keppel’s Vision 2030 plans to be more focused and disciplined as it executes its mission to provide solutions for sustainable urbanisation. The proposed transactions, together with Keppel’s increasing focus on renewables, will accelerate the Group’s pivot towards new energy and decarbonisation solutions,” the statement said.
Key terms in both MoUs related to the merger-spinoff-joint venture remain under discussion and subject to negotiation.
