A Singapore mega merger that has been long in the works seems finally set to happen. Keppel Corporation Limited and Sembcorp Marine Ltd entered into definitive agreements yesterday for the proposed combination of Keppel Offshore & Marine Ltd and Sembcorp Marine.
The legacy rigs and receivables that Keppel O&M has gotten stuck with won’t be part of the deal. They will be sold to a separate asset company that will be 90%-owned by other investors, with Keppel Corporation holding a 10% stake.
Without getting into the excruciating details of the agreement, the merger comes against the backdrop of the prolonged and severe downturn the offshore and marine (O&M) sector has faced a prolonged and severe downturn since 2015. Amid this downturn, competition for a shrinking pool of projects has intensified, contributing to an increased level of debt across the industry.
Though the parties to yesterday’s agreement note that “oil prices have rallied in recent months, and conditions in the O&M sector are improving,” they say that the long-term outlook for the O&M sector is shifting.
“Growing commitments by governments and companies around the world seeking to achieve net zero carbon emissions are driving increasing demand for renewable and clean energy solutions,” they say. “These include areas such as offshore wind, hydrogen and ammonia, in which both Keppel O&M and Sembcorp Marine have built their respective capabilities and track records in the past few years.”
The combination is aimed at creating of a premier global player for the renewable, new energy and cleaner O&M solutions markets.
Singapore Government owned investment company Temasek Holdings, which is the controlling shareholder of both Keppel and Sembcorp Marine, will be the largest shareholder in the new enterprise with a 33.5% stake.
NEW NAME, NEW BRAND
The combined entity will adopt a new name and brand identity to reflect its focus on offshore renewables, new energy and cleaner solutions in the O&M sector.
Loh Chin Hua, CEO of Keppel and chairman of Keppel O&M, said, “The signing of a win-win agreement on the proposed combination of Keppel O&M and Sembcorp Marine marks a strategic milestone for the offshore & marine sector. It brings together two leading O&M companies in Singapore to create a stronger player that can realize synergies and compete more effectively amidst the energy transition. Together with the resolution of Keppel O&M’s legacy rigs, this is a major step forward in Keppel’s Vision 2030 journey, as we simplify our business and sharpen our focus on providing solutions for sustainable urbanization.”
Tan Sri Mohd Hassan Marican, chairman of Sembcorp Marine, said, “The proposed combination marks a major milestone in Sembcorp Marine’s strategic business transformation journey since 2015 to stay resilient amid dramatic changes in our industry. Sembcorp Marine and Keppel O&M are Singapore’s homegrown marine icons. I am confident the combined entity, with its larger operational scale, broader geographical footprint and enhanced capabilities, will create a leading Singapore player to capitalise on the opportunities in the offshore and marine, as well as the renewable and clean energy sectors.”
Nagi Hamiyeh, head, portfolio development group at Temasek, said, “We are pleased that Keppel and Sembcorp Marine have come to an agreement on the terms of a combination that we think will be transformational for the companies. We believe the combined business will have the expertise and capacity to accelerate the pivot towards growing opportunities in the renewable and clean energy sectors, and pursue meaningful projects around the world that address the increasing need for greener and cleaner energy solutions. In doing so, it will be able to deliver long-term value creation for shareholders and other stakeholders. We look forward to the support of the shareholders of Keppel and Sembcorp Marine to make this possible.”