• Temasek’s unit to make partial offer, subject to pre-conditions
• Offer price S$7.35 at 26% premium
• Opens the door for bigger things to come

Temasek’s Subsidiary to Make Partial Offer

Subject to Pre-Conditions, Kyanite Investment Holdings Pte Ltd (Offeror) intends to make a partial offer to acquire 30.55% of shares in Keppel Corporation (KEP). Kyanite is an indirect whollyowned subsidiary of Temasek Holdings (Private) Ltd, which already directly owns 20.45% of KEP. If successful, the partial offer will result in Temasek and the Offeror directly owning 51% of KEP and the Offeror Concert Party Group having a resultant shareholding in KEP of 52.04%.

Offer Price of S$7.35 at 26% Premium

If and when the partial offer is made, the Offeror will offer S$7.35 in cash for each share, implying a premium of ~26% over S$5.84, which is the last traded price per share prior to this announcement. The offer price is also just a 3% shade lower than our fair value estimate of S$7.58 for KEP.

Process Will Take Time

The Offeror has mentioned that it does not intend to delist or privatize KEP; it will remain listed on the SGX-ST. Investors should also note that the partial offer will not be made unless and until all the PreConditions have been satisfied and/or waived on or before 21 October 2020. These include obtaining domestic and foreign regulatory approvals which could take several months. Once each PreCondition is satisfied or waived, the Partial Offer process will take two to three months.

Opens the Door for Bigger Things to Come

There has long been talk of a potential restructuring of businesses under the Keppel Corp and Sembcorp Industries stable such as the merging of the offshore & marine yards. This announcement of a partial offer, if successful, allows Temasek to exercise control over KEP.

A strategic review of businesses can be undertaken post the successful partial offer and this includes the possibility of a restructuring of businesses as mentioned earlier. It sets in motion a series of potential transactions that may happen, and we note that it is also mentioned in the offer document that creating sustainable value through such actions may take several years.

Overall, we view this as a positive development as Temasek is taking a proactive approach in reviewing its portfolio and investments for the longer term. We maintain our FV estimate of S$7.58 on the stock.

Source: OCBC Research - 22 Oct 2019