Keppel, Sembcorp Marine to discuss offshore and marine business merger

Singapore’s conglomerate Keppel Corporation and compatriot offshore builder Sembcorp Marine are reportedly set to begin discussions to combine their offshore and marine businesses.

Reuters said that a potential deal would bring together one of the world’s largest offshore oil rig builders with smaller rival Sembcorp, quoting sources familiar with the matter.

It is worth noting that both businesses were hit by years of oversupply in the sector and sustained weakness in oil prices and a drop in new orders.

Joel Ng of KGI Securities said: “Consolidation is needed simply because of competition, and the need for bigger working capital to take on new and bigger projects. Both companies own a network of shipyards in Singapore and overseas, including in Brazil, and employ thousands of workers”.

Keppel and Sembcorp have Singapore state investor Temasek Holdings as their largest shareholder. Currently, the trading of both sets of stock was halted on Thursday.

Sembcorp has a market value of around $1.8 billion, while Keppel, whose businesses include property and infrastructure, is valued at around $6.92 billion.

The sources told Reuters that boards of both companies are meeting to begin discussions that could take many months and ultimately result in Keppel hiving off its O&M business and combining it with Sembcorp Marine.

Keppel’s shares have lost around 15 per cent over the past 12 months, while Sembcorp has tumbled 40 per cent. Last year, Temasek scrapped a $3 billion move to raise its stake in Keppel and take control following Keppel’s poor performance.

In late September 2020, Keppel decided to review its offshore and marine business as part of its overall strategy and roadmap amid the sector’s challenging environment and just this year the company stated that its Keppel Offshore & Marine unit would exit the offshore rig building business as the company positions for the global energy transition.

This is also not the first time that rumours arose regarding the merger between Keppel and Sembcorp as first such speculation popped up back in late 2019.

Market talk of a consolidation between the rig builders again resurfaced in June 2020 when Sembcorp Industries, the former parent of Sembcorp Marine, unveiled plans to demerge its core business from the lossmaking rig builder.