SINGAPORE - Shares of Sembcorp Marine (Sembmarine) fell by more than 17 per cent while those of Keppel Corporation rose 3 per cent on Thursday (April 28), a day after the companies announced the proposed merger of Keppel Offshore & Marine (O&M) with Sembmarine.
The combination would result in one of the world’s largest offshore energy players worth $8.7 billion with a combined order book of more than $6.4 billion.
Temasek Holdings will own a 33.5 per cent in the mainboard listed company.
Analysts see Keppel as potentially a big winner from the proposed O&M merger.
The move would help Keppel realise about $9.4 billion in value.
This includes $500 million in cash from Keppel O&M to settle outstanding interest and partial redemption of certain perpetual securities previously issued to Keppel.
It also includes $4.05 billion from the sale of Keppel O&M’s legacy rigs and associated receivables to a separate company that will be 90 per cent owned by other investors, with Keppel holding a 10 per cent stake.
Keppel will also get a bigger share - 56 per cent - of the new entity arising from the merger, while Sembmarine shareholders will own 44 per cent.
In a report issued on Thursday, OCBC Investment Research said it sees the proposed merger as a significant step in regard to Keppel’s asset monetisation efforts.
The research house has a “buy” recommendation and fair value of $8.78 on Keppel so far, representing a potential upside of around 22 per cent from the stock’s closing price on Thursday.
However, it has a “sell” call on Sembmarine and fair value of 11 cents, similar to the stock’s closing price on Thursday.
In its report, CGS-CIMB noted that Sembmarine would face temporary share price pressure if it takes longer than expected to restructure its business and return to profitability.
The brokerage estimates that the stock could fall by as much as 18 per cent to 9 cents in the months ahead.
Still, UOB Kay Hian (UOBKH) said the deal benefits both companies over the short and longer term.
For Keppel, the divestment of Keppel O&M will allow it to focus more on asset-light and/or recurring-fee businesses.
The brokerage estimates the stock could be worth as much as $10.11 in the next 12 months.
It also has a “buy” call on Sembmarine with a target price of 15.6 cents. This is because the company will become larger and more competitive as it focuses on new orders in the renewables space, UOBKH said.
Sembmarine was the most heavily traded counter in Singapore on Thursday, with more than 1.2 billion shares changing hands.
