Temasek offers to buy control of rig-builder Keppel for $3 billion

SINGAPORE (Bloomberg) - Singapore’s Temasek Holdings Pte plans to take control of Keppel Corp. for about S$4 billion ($3 billion) and undertake a review of the oil-rig builder’s business that could involve a board shakeup.

The state-backed investor, which already owns about one-fifth of Keppel, offered to buy an additional 30.6% stake at S$7.35 a share, according to a statement Monday. That’s 26% higher than what Singapore-based Keppel traded at before its shares were halted, pending the announcement.

Becoming the majority owner of one of the world’s biggest oil-rig makers would be seemingly at odds with Temasek’s preference to steer away from fossil fuels; the firm decided against investing in Aramco’s IPO in part over environmental concerns. But taking over Keppel could open a variety of profitable merger, acquisition and divestment options that may help improve the builder’s financial and environmental sustainability amid falling revenue and rising capital demands.

“The partial offer reflects our view that there’s inherent long-term value in Keppel’s businesses, notwithstanding the challenges presented by the current business and economic outlook,” Temasek International President Tan Chong Lee said in a statement.

Sembcorp Marine. Temasek’s offer for the additional interest in Keppel could make a merger between Keppel’s offshore and marine unit and rival Sembcorp Marine Ltd. easier, Joel Ng, an analyst at KGI Securities Co. said by phone. It would allow the consolidation of Singapore’s two largest shipyards to proceed, he added in a note to clients.

“Temasek is already a major shareholder of Sembcorp Marine, and after this, they will become a major shareholder of Keppel making any merger easier,” Ng said. Sembcorp Marine rose as much as 12%, while its parent Sembcorp Industries Ltd. jumped as much as 9.6%.

Temasek said it plans to keep Keppel traded on the Singapore stock exchange. Keppel also has businesses involved in real estate and infrastructure, and the entire company is subject to a “comprehensive strategic review” with the objective of creating “sustainable value” for shareholders. That shakeup could lead to new directors on its board, Temasek said in its statement.

“The S$7.35 offer made by Temasek is a sign of where it sees value and potential in Keppel’s main segments, real estate and offshore and marine, especially given the fluctuation in the oil price recently,” Justin Tang, head of Asian research at United First Partners, said. “Sembcorp Marine shares are rising -- it’s a view on the sector,” he said.

Environmentally Minded. The bid for control could also help Keppel fund Temasek’s preferred change in strategic direction. It needs to find capital for a range of projects, from becoming more palatable to environmentally minded clients to the 5G expansion of M1 Ltd. -- the Singaporean telecoms company it helped acquire.

Temasek International investment group joint head Nagi Hamiyeh last week told Bloomberg News the company did not expect oil to be an ideal investment in the foreseeable future. When asked what this meant for Keppel, before Monday’s announcement, he said portfolio companies were looking at ways to “re-purpose some of their businesses to try and grasp the demands of tomorrow, such as potentially floating data centers, offshore wind platforms and others.”

The deal is subject to pre-conditions, which include regulatory approval around the world and the consent of counterparties to material contracts. The deal could also be called off if Keppel’s financial performance and condition deteriorate “meaningfully” before the transaction is completed.

Morgan Stanley is acting as Temasek’s sole financial adviser.