Keppel rises, Sembmarine falls on resumption of trading

Keppel Corp and Sembcorp Marine (Sembmarine) were among the most active stocks on the Singapore bourse yesterday after the two companies resumed trading following news of a possible merger of their offshore and marine (O&M) businesses.

Keppel rose 29 cents or 5.7 per cent to close at $5.40 with 17.6 million shares changing hands.

It was a far different story for Sembmarine, which fell 27.2 per cent or 5.2 cents to 13.9 cents, with a striking 997 million shares traded, making it the most active 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 widely expected move comes amid an extended period of low oil prices and persistent disruptions in the energy sector such as manpower shortages and reductions in demand for rigs.

Keppel said it expects to receive shares in the combined entity, which will remain listed on the Singapore Exchange. These shares will be distributed to its investors. The company will also receive cash of $500 million.

The firm 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 moves are necessary to stay competitive and support the company's longer-term vision to focus on sustainable businesses and generate recurring income.

DBS analyst Ho Pei Hwa called the strategy 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 about Sembmarine, which announced separately on Thursday that it will seek fresh funds via a fully underwritten $1.5 billion renounceable rights issue, a move that is expected to immediately depress its shares from the dilution effect.

Last September, Sembmarine raised $2.1 billion in a similar exercise following its demerger from Sembcorp Industries.

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

But she warned investors that they 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.