Singapore’s Mega Oil Rig Builders Keppel, Sembcorp Marine Discuss Potential Merger

Keppel Corp. and Sembcorp Marine on Thursday agreed to explore the possible merger of their offshore and marine (O&M) engineering services businesses.

Combining the two companies—both controlled by Singapore state investment arm Temasek Holdings–will create a stronger entity that’s poised to benefit from the shift towards cleaner and renewable sources of energy, the companies said in a joint statement.

“While the outlook for oil exploration and related activities remains uncertain, the outlook for energy transition is robust, including areas such as offshore wind and hydrogen,” according to the statement. The International Energy Agency recently forecast investments in clean energy to more than triple by 2030 to nearly $5 trillion per annum, it added.

Keppel and Sembcorp Marine’s O&M businesses have been hard hit by the drastic reduction in oil and gas exploration activities in recent years as energy companies pivot towards the production of cleaner and renewable energy. The Covid-19 pandemic exacerbated the situation, driving both companies into the red last year as oil demand and prices plunged.

Under the memorandum of understanding signed by the two companies yesterday, Keppel and Sembcorp Marine will form an equally-owned joined venture company, which will be a listed entity. The transaction will be subject to the approval of shareholders and regulators.

“The combined entity would be better positioned to compete for larger contracts, whilst pursuing the synergies that can arise from the increased operational scale, broader geographic footprint and enhanced capabilities of a larger entity,” the companies said in a statement.

While shareholders of the two companies will receive shares in the merged entity, Keppel said it will receive an additional cash consideration of up to S$500 million ($372 million) once the transaction is completed.

Keppel said it has also agreed to sell its legacy rigs, which were valued at S$2.9 billion last year, and associated receivables to Kyanite Investment Holdings, a wholly owned subsidiary of Temasek. Once market conditions improved, the rigs will be sold into a separate company that will be owned 80% by external investors and 20% by Keppel.

Separately, Sembcorp Marine said it will raise S$1.5 billion from a rights issue to strengthen its financial position and accelerate its pivot towards clean energy.

“The further recapitalization via the rights issue is required to strengthen the group’s balance sheet, address the temporary working capital depletion and replenish liquidity to meet the projected operational funding requirements through to end 2022,” Sembcorp Marine said in a statement.