Singapore yards Keppel and Sembcorp Marine are considering merging their loss-making offshore and marine (O&M) businesses as they battle against a prolonged downturn in offshore orders. A deal would see Keppel transferring its rig-building sector into a new company.
Keppel and Sembmarine own a network of shipyards in Singapore and overseas, including in Brazil, and employ thousands of workers. The Keppel group would ultimately exit the rig-building and offshore sector, with Singapore state-owned investment group Temasek becoming the largest shareholder in the combined company.
Keppel's O&M unit, which is one of the world's largest offshore oil rig builders, and Sembcorp Marine (Sembmarine) have suffered from a combination of oversupply, a sustained oil price collapse and a long-term drop in new orders. Markets have been expecting more mergers of rig-building yards as companies in the shipbuilding and marine sectors in countries such as South Korea and China have already joined forces.
"Consolidation is needed simply because of competition, and the need for bigger working capital to take on new and bigger projects," analyst Joel Ng at KGI Securities said.
Sembmarine has a market value of S$2.4 billion (US$1.8 billion), while Keppel, whose businesses include property and infrastructure, is valued at S$9.3 billion. "After several months of discussions with external parties, we have reached an understanding on how the deal will proceed but it is still subject to diligence and finalising a number of very important factors such as the exchange ratio," said Keppel chief executive officer Mr Loh Chin Hua.
In a joint statement the companies said they will "undertake mutual due diligence and discuss the terms of the potential combination, which is expected to take several months." "If completed, the potential combination would create a stronger player to capitalise on growing opportunities in the O&M, renewable and clean energy sectors," they added.