Sembcorp Industries may inject funds or buy full control of Sembcorp Marine: sources

SINGAPORE (REUTERS) - Singapore's Sembcorp Industries may inject funds into Sembcorp Marine or buy full control of the drilling rig builder to replenish finances strained by a collapse in oil prices, people familiar with the matter said.

Sembcorp Industries - almost half-owned by investor Temasek Holdings - is the parent of Sembcorp Marine which analysts said is at risk of writing off assets and cutting its full-year dividend.

"It's quite clear that financial support has to come in and a take-private is one of the easier options, but ultimately there needs to be a long-term solution," said one of the people, who were not authorised to speak publicly on the matter and so declined to be identified.

Sembcorp Industries owns 61 per cent of Sembcorp Marine which services an oil industry plagued by oversupply. The plunge in oil prices to multi-year lows has led to a drop in orders for rigs and cancelled contracts.

Sembcorp Industries could therefore benefit from selling the rig builder and focusing on its profitable utilities business, analysts said. One buyer could be larger rig-building rival Keppel Corp Ltd, 21 per cent owned by Temasek.

"The natural buyer and a merger candidate clearly is the offshore marine business of Keppel," said one banker, who declined to be identified. "But the issue with any combination necessarily is that the upside there is cost-cutting."

Bankers involved in the sector said a single domestic champion could make sense to counter competition from China and South Korea. However, the likely option is for Sembcorp Industries to take full control of its subsidiary.

Sembcorp Industries, Sembcorp Marine and Temasek declined to comment. Keppel, which is due to report earnings on Thursday, also declined to comment.

Since the beginning of the millennium, Singapore's two rig builders have risen to dominate the global market for jackup rigs, which drill in depths of as much as 122 metres (400 feet). Sembcorp Industries and Keppel discussed a merger in 2001.

But with the drop in oil prices, Singapore's US$10 billion (S$14.3 billion) rig building industry faces a dearth of new orders, while some orders are at risk of cancellation.

For instance, the bulk of orders at both Sembcorp Marine and Keppel are from Sete Brasil, an indebted affiliate of state-run Petroleo Brasileiro SA Petrobras. Sete Brasil has paid neither since late 2014.

Both Sembcorp Marine and Keppel are trading at their lowest valuations in at least 13 years, Thomson Reuters data showed.