Keppel Corp’s proposed deal to merge its offshore and marine business with Sembcorp Marine is not tied to short term movement of oil prices.
“The decision to pursue the proposed transactions was taken considering the dramatic, long-term changes in the global offshore and marine engineering and energy sectors and the global energy transition away from oil,” says Keppel.
“Through the proposed combination, Keppel O&M and Sembcorp Marine will be able to realise synergies, leveraging their complementary strengths to emerge as a stronger player to seize opportunities in the energy transition,” adds Keppel.
Keppel was responding to shareholders’ questions ahead of its AGM to be held on April 22, how given rising oil prices, if Keppel would review its decision on the proposed merger.
When the two companies announced their proposal last June, oil prices were hovering at around US$60 per barrel. It has since nearly doubled.
Keppel agrees that with higher oil prices, the offshore drilling rig market has shown signs of improvement. It is thus “hopeful” that its legacy rigs built and still held by Keppel O&M, could be “substantially monetized” over the next three to five years.
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In a separate announcement on April 13, Keppel said it has cancelled rig-building contracts worth US$850 million with two customers that did not pay up in full nor take delivery of the completed rigs. Keppel has reserved its ownership over the rigs and has asserted its right to sell the rigs.
Meanwhile, Keppel reiterates its March 31 joint announcement with Sembmarine that both parties are committed to reaching a definitive agreement by April 30, after the timeline was pushed back twice.
Keppel explains that “more time and deliberation” is required for due diligence to be completed, and for both parties to come to an agreement on the terms.
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“The combined entity will accelerate the companies’ pivot towards renewables and clean energy, while addressing the opportunities and challenges in the evolving and consolidating O&M industry,” adds Keppel.
Keppel also reminds shareholders that they won’t get cut out from this deal. The company reiterates that when it first mooted the proposed merger, it had already indicated it will distribute in specie to Keppel shareholders the shares it would receive from the combined entity.
This “would enable shareholders to continue to enjoy upside from synergies of the business combination, the recovery in the O&M sector, as well as new growth opportunities in the energy transition,” the company says.
The proposed merger aside, Keppel is already riding on the economic recovery from the depths of the pandemic. For FY2021, the company was able to report earnings of $1 billion – a six-year-high, and a full year dividend payout of 33 cents – thrice that of the preceding FY2020.
Elsewhere in the response to shareholders, Keppel reiterates its medium to long term ROE target of 15%.
This will be partly achieved by an active asset divestment programme and putting the proceeds into new growth areas such as renewables, decarbonisation solutions, sustainable urban renewal, connectivity solutions such as data centres, and asset management. “We are exploring a number of exciting merger and acquisition opportunities,” the company says.
On the other hand, assets identified for possible sale, as announced earlier, had a carrying value of some $17.5 billion as at June 2020.
These assets include landbank which is held at historical cost, development projects, investment properties, assets being developed and stabilised for monetisation, as well as non-core assets. Just on March 31, for example, the company announced the sale of Keppel Logistics to Geodis International for $80 million.
“We will continue to build on the traction of our asset monetisation programme and increasingly pivot towards an asset-light model. We will gravitate away from lumpy earnings towards more recurring income,” the company says.
