Oil rig builders backed by Temasek in mega deal amid slowing industry

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The Sembcorp Marine sign is pictured at the Singapore Shipyard, May 23, 2019. REUTERS/Edgar Su

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SINGAPORE, April 27 (Reuters) – Singapore’s Sembcorp Marine (Sembmarine) (SCMN.SI) has agreed to a multibillion-dollar merger with the largest offshore and marine unit of Keppel Corp (KPLM.SI), a year after the Temasek-backed companies have begun talks to deal with an industry downturn.

Loss-making oil rig builders have been battered by years of oversupply and oil price volatility, as well as a drop in new orders.

These problems have been exacerbated by the global transition to renewable energy, consolidation among Chinese and South Korean rivals and major disruptions during the COVID-19 pandemic when oil prices fell.

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The slowdown has increased competition for a shrinking pool of projects, driving up industry debt levels and leading Sembmarine to raise 3.6 billion Singapore dollars ($2.61 billion) in equity over the course of two years, with strong support from Singaporean public investor Temasek (TEM.UL).

Temasek, the majority shareholder of Sembmarine, will eventually become the largest shareholder of the merged company, with a 33.5% stake.

As part of the merger, Keppel and its shareholders will own 56% of the combined entity, while Sembmarine shareholders own the remainder.

Sembmarine was valued at S$4.1 billion at Tuesday’s closing price and its listing will be used for the combined entity.

Keppel said it would distribute 46% of the shares of the merged entity in kind to its shareholders and retain a 10% stake.

Shares of both companies were halted on Wednesday.

Analysts have been calling for industry consolidation for years. Sembmarine spun off from parent company Sembcorp Industries (SCIL.SI) in 2020, paving the way for the Keppel deal.

Sembmarine and Keppel have a network of shipyards in Singapore and overseas, employing nearly 20,000 people between them.

The companies declined to comment on the potential for job cuts. They said they would engage with workplace unions to address labor considerations.

Sembmarine has lost money over the past four years, including a net loss of S$1.2 billion in 2021 that included significant write-downs.

Keppel, which also counts Temasek as its largest shareholder with a 21% stake, said in January 2021 that it would quit rig construction to focus on infrastructure projects after recording major write-downs at its unit. offshore and marine.

JPMorgan is Keppel’s financial advisor on the deal, while Credit Suisse is Sembmarine’s financial advisor.

($1 = 1.3777 Singapore dollars)

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Reporting by Anshuman Daga; Additional reporting by Chen Lin and Harish Sridharan; Editing by Uttaresh.V, Christopher Cushing and Jamie Freed

Our standards: The Thomson Reuters Trust Principles.

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