Temasek-backed oil rig builders agree US$6.3b merger amid sector downturn

SINGAPORE (April 28): Singapore's Sembcorp Marine (Sembmarine) has agreed to a S$8.7 billion (US$6.29 billion or about RM27.42 billion) merger with Keppel Corp's larger offshore and marine unit, a year after the Temasek-backed firms began deal talks amid an industry downturn.

The loss-making oil rig builders have been whiplashed by years of oversupply, oil price volatility and a drop in new orders.

Such troubles have been exacerbated by the global transition towards renewable energy, consolidation of Chinese and South Korean rivals and major disruptions during the Covid-19 pandemic, when oil prices fell.

The combination "brings together two leading O&M (offshore and marine) companies in Singapore to create a stronger player that can realise synergies and compete more effectively amid the energy transition," Keppel chief executive officer Loh Chin Hua said.

The downturn increased competition for a shrinking pool of projects, driving up industry debt levels and leading Sembmarine to raise S$3.6 billion of equities over the past two years, with strong backing by Singapore state investor Temasek.

Temasek, Sembmarine's majority shareholder, will ultimately become the largest shareholder of the merged company, with a 33.5% stake.

Shares in Sembmarine, which was valued at S$4.1 billion as of Tuesday's close, fell 11% to 11.7 Singapore cents on Thursday (April 28) as trading resumed. Keppel shares rose 1.3%.

Sembmarine's listing will be used for the combined entity.

As part of the merger, Keppel and its shareholders will own 56% of the combined entity, while Sembmarine shareholders will own the rest.

Keppel said that the combined entity's market value is S$8.7 billion on a proforma basis but that this could change based on the entity's share price when it lists.

Keppel will distribute 46% of the merged entity's shares in specie to its shareholders and retain a 10% stake.

Analysts have called for industry consolidation for years. Sembmarine demerged from parent Sembcorp Industries in 2020, helping pave the way for the Keppel deal.

Sembmarine and Keppel own shipyards in Singapore and overseas, between them employing nearly 20,000 people.

The companies declined to comment on the potential for job cuts, saying they would engage with workplace unions.

Sembmarine has lost money for the past four years, including a 2021 net loss of S$1.2 billion that featured large write-downs.

Keppel, which also counts Temasek as its single biggest shareholder with a 21% stake, said in January 2021 that it would exit rig building to focus on infrastructure projects after booking major impairments for its offshore and marine unit.

DBS was the joint financial adviser to Keppel's unit and Sembmarine regarding the relative valuations of both firms. JPMorgan was the financial adviser to Keppel on the deal, while Credit Suisse was the financial adviser to Sembmarine.

Shareholder meetings for the deal are due later this year.