SINGAPORE - The combination of Keppel Offshore & Marine (O&M) and Sembcorp Marine will create a stronger and more competitive global player that can capitalise on growing opportunities amid the energy transition.
Responding to shareholders' questions ahead of its upcoming annual general meeting, Keppel said that by combining the best-in-class expertise of both Keppel O&M and Sembmarine, the combined entity would be able to accelerate the companies' pivot towards renewables and clean energy.
"The combined entity would be better positioned to compete for larger contracts, benefiting from the increased operational scale, a broader geographic footprint and the enhanced capabilities of a larger entity," Keppel said in a written response. "It is envisaged that the combined entity will be able to realise synergies between Keppel O&M and Sembcorp Marine and deliver sustainable value over the long term for its shareholders."
Keppel also reiterated its commitment to continue with exclusive negotiations with Sembmarine and work towards a definitive agreement by April 30.
It said the divestment of Keppel O&M was in line with Keppel's Vision 2030.
Keppel's Vision 2030 is a strategic long-term plan for sustained growth via several key initiatives like asset monetisation, business transformation, driving integration and improving earnings.
"We believe that the proposed transactions, if successful, would be in Keppel Corporation's and our shareholders' best interests," Keppel said.
Keppel added that it intends to distribute in specie to its shareholders the shares that it receives in the combined entity, "to enable its shareholders to continue to enjoy the upside from the recovery of the offshore and marine business and the opportunities in the energy transition".
It revealed that both companies had made significant progress on mutual due diligence, the transaction structure, exchange ratio and other related areas since the announcement of the combination in June 2021, as well as on the sale of Keppel O&M's legacy rigs and associated receivables to a separate "Asset Co". This separate company will be majority-owned by external investors.
Keppel will retain a stake of up to 20 per cent in the Asset Co as an investment, and will share the potential upside from the legacy rigs and the recovery of the O&M business. With higher oil prices and improving market conditions, Keppel O&M's legacy rigs could potentially be substantially monetised in the next three to five years.
"The proposed transactions, if successfully completed, will allow us to sharpen our focus on renewables, new energy and decarbonisation solutions," Keppel said.
Expectations of an announcement of a merger of Keppel O&M and Sembmarine by this month have sparked much market interest and fuelled Sembmarine stock to rise to its highest levels in a year.
The counter closed at 12 cents last Thursday.
Analysts have also started re-rating the stock.
In a report last week, UOB Kay Hian raised Sembmarine's target price to 13 cents, citing new order wins in oil and gas and renewables, and the potential upsizing of the company's capabilities following a merger with Keppel O&M.
It added that, based on a five-year price-book ratio of 1.1 times, the stock prices should be 14.3 cents; while a 10-year price-book average of 1.5 implies a stock price of 18.9 cents.
