Keppel jumps, Sembcorp Marine tumbles as trading resumes after news of O&M merger talks

Keppel shares jumped 29 cents or 5.4 per cent to $5.40 at 9.04am while Sembmarine fell 4.6 cents or 24 per cent to 14.5 cents.
Keppel shares jumped 29 cents or 5.4 per cent to $5.40 at 9.04am while Sembmarine fell 4.6 cents or 24 per cent to 14.5 cents.PHOTOS: KEPPEL CORP, SEMBCORP MARINE

SINGAPORE - Keppel Corp and Sembcorp Marine (Sembmarine) were among the most heavily traded stocks on the Singapore Exchange on Friday (June 25) after the two companies resumed trading following talks of merging their offshore and marine (O&M) businesses. 

Keppel shares closed at $5.40, up 39 cents, or 5.4 per cent, since Wednesday, with 17.6 million shares changing hands. In contrast, Sembmarine was down 5.2 cents, or 27.2 per cent, closing the day at 13.9 cents, with more than 997 million shares traded, making it the most traded stock by volume.

The companies had halted trading on Thursday when they announced a non-binding agreement to enter into exclusive talks with the aim of merging Keppel's offshore and marine arm (Keppel O&M) and Sembmarine.

This is intended to create a combined entity that is better positioned to compete for contracts in offshore renewable energy. The move comes amid an extended period of low oil prices and persistent disruptions in the oil and gas sector, such as manpower shortages and reductions in demand for rigs by oil majors.

If a merger ensues, Keppel says it expects to receive shares in the combined entity, which will remain listed on the Singapore Exchange. Keppel intends to distribute all these shares to its shareholders. It will also receive cash totalling $500 million.

Keppel also announced that it will sell its remaining inventory of oil rigs and receivables to a separate company, which will be controlled by Temasek Holdings.

Keppel chief executive Loh Chin Hua said the developments announced on June 23 are necessary for Keppel to stay competitive and support the company’s longer-term vision to focus on sustainable businesses and generate recurring income.

The moves also come amid an extended period of low oil prices and persistent disruptions in the oil and gas sector, such as manpower shortages and reductions in demand for rigs by oil majors.

DBS analyst Ho Pei Hwa endorsed the move for Keppel, calling it a "positive development" that will help the conglomerate streamline its operations and help it "focus on asset light businesses and sustainable solutions".

The analyst has a "buy" call on the stock, with a target valuation of $6.20, representing potential upside of more than 14 per cent from current levels.

Analysts were less positive over Sembmarine. 

In a move expected to immediately depress Sembmarine's shares from the dilution effect, the company separately announced on Thursday that it will seek fresh funds via a fully underwritten $1.5 billion renounceable rights issue. In September last year, Sembmarine raised $2.1 billion in a similar exercise following its demerger from Sembcorp Industries.

CGS-CIMB analyst Lim Siew Khee suggested that long-term Sembmarine shareholders take up the rights, saying that a combined entity would be “the only mega yard in the region”, and backed by Temasek, to boot.

However, Ms Lim warned that investors should be prepared for near-term challenges such as widening losses at the combined entity. The analyst has a target valuation of 22.6 cents on Sembmarine.