Keppel, Sembmarine shares fall after last week’s merger vote

SINGAPORE - Shares of both Keppel Corporation and Sembcorp Marine fell on Monday, days after shareholders of the latter

overwhelmingly voted for the $4.5 billion merger of their company

with Keppel’s subsidiary Keppel Offshore and Marine.

Keppel slid 17 cents, or 2.3 per cent, to $7.10 on a volume of 8.8 million, while 723 million Sembmarine shares changed hands as the stock fell 1.5 cents, or 11.5 per cent, to 11.6 cents – its lowest level in over three months.

This comes after the merger deal received 95.28 per cent approval from voting Sembmarine shareholders to create an enlarged company with $18.11 billion in the order book.

Keppel shareholders had given their nod to the deal

on Dec 8 with 99.96 per cent voting in favour.

Under the terms of the deal, Sembmarine will issue 36.8 billion new shares to Keppel, which will distribute them in specie to the holders of its 1.8 billion shares.

For every 1,000 Keppel shares held, Keppel shareholders will get 19,100 Sembmarine shares.

Keppel will retain the remaining Sembmarine shares.

Besides getting Sembmarine shares on March 1, Keppel shareholders will also receive 18 cents in dividend if they hold the shares until it goes ex-dividend on April 27.

However, analyst Arun George noted on investment advisory site Smartkarma that the transaction will result in a large share overhang for the new and enlarged Sembmarine.

“The overhang arises from 26.3 million new Sembmarine shares issued to Keppel’s existing shareholders,” he noted, adding that this excludes Singapore investment company Temasek, which will have a 34.5 per cent stake in Sembmarine.

“It is unclear what percentage of Keppel’s existing shareholders are not interested in having exposure to offshore and marine companies, and would constitute the overhang.”

Some brokers were somewhat puzzled by the high volume of the Keppel stock selldown, especially as it is happening just days ahead of the in-specie distribution and about two months before the ex-dividend date.

“It could be institutional funds who do not wish to end up with Sembmarine shares,” said the director of a trading team at a bank-linked broking house.

“A similar selldown happened last year to Yangzijiang Shipbuilding after it hived off Yangzijiang Financial Holding.”

Investment house BlackRock sold around 486,000 Keppel shares last Thursday to reduce its stake to below 5 per cent.

Despite that, several analysts have upgraded Keppel’s stock, pointing to its focus on asset management, energy, infrastructure and environment solutions.

Over the weekend, CGS-CIMB placed a price target of $10.04 on Keppel, while Macquarie Research cited a “re-rating upside post-completion of the transaction” and stamped a 12-month price target of $9.59 on the stock.

For Sembmarine, there is upside in the longer term, say brokers.

They reckon that given the size and free float of the enlarged entity, the stock could ultimately be added to various indexes, forcing index-linked fund managers to accumulate the counter.

CGS-CIMB has a 12-month target price of 19 cents for the stock.