Investors sold off Keppel Corp after Singapore investment company Temasek walked away from its $4.1 billion conditional offer for the conglomerate.
The surprise move came after Keppel posted a second-quarter net loss of $697.6 million, breaching a precondition for Temasek's offer.
Keppel shares dived 11.11 per cent, or 60 cents, to close at $4.80 yesterday. The stock, which plunged by as much as 12.8 per cent at the opening bell, has lost around 29 per cent since the start of the year.
Market watchers said they were surprised by the timing of Monday's announcement, which came well before Aug 31, the date by which Temasek said it would make its decision.
The withdrawal also came a day ahead of the extraordinary general meetings of Sembcorp Industries and Sembcorp Marine (SembMarine), where shareholders were to pass judgment on a demerger of SembMarine from its parent.
Temasek's role in making a partial offer for Keppel and moving to directly own a stake in SembMarine had been viewed by many as critical for a consolidation of the struggling offshore and marine sector.
"It's a prudent move by Temasek to walk out" of the Keppel bid, said Azure Capital chief executive and founder Terence Wong. "Temasek still owns about 20 per cent of Keppel. What's to stop it from doing a deal down the road?"
He added: "There are strong merits for a demerger. It's definitely good for Sembcorp Industries shareholders as that will cull a bleeding unit. And... I believe a Keppel-SembMarine merger is just a matter of time."
Kyanite Investment Holdings, a unit of Temasek, invoked a material adverse change clause in pulling out of the deal, a bourse filing said on Monday.
The Securities Industry Council of Singapore has no objection to Temasek's move.
The material adverse change clause mandated that Keppel's after-tax profit must not fall by more than 20 per cent, or below $557 million, over the cumulative four quarters from the third quarter ended Sept 30 last year.
But the clause was breached when Keppel reported that its cumulative loss after tax for the year to June 30 stood at $165 million, hit by $919 million in provisions for Keppel Offshore & Marine's contract assets, doubtful debt and its share of impairment provisions arising from its Floatel associate.
Keppel said on Monday the Temasek offer was "unsolicited" and that it had not negotiated the terms of the deal, including the material adverse change clause. It added that "there was no certainty that the pre-conditions would be satisfied or waived and that the partial offer would be made".
"Notwithstanding the withdrawal of the partial offer, we intend to engage Temasek, which remains our single largest shareholder, to explore opportunities for strategic collaboration," Keppel added.
"We continue to believe in the inherent value of Keppel's business, and have a strong balance sheet and support from our network of banks to finance operations and growth initiatives," the company added.
DBS Equity Research, which downgraded Keppel to "hold" from "buy", said: "While another offer for Keppel by Temasek over the next 12 months might be less likely, requiring Securities Industry Council of Singapore's consent, we can't rule out other potential plans on the restructuring of Keppel."
CGS-CIMB continued to recommend "add" on Keppel but "only after the share price shock subsides", while OCBC Investment Research has a "buy" rating as it sees value in the stock even though "any short (selling) activity could cause prices to overshoot on the downside".
Grace Leong
