SINGAPORE – KEPPEL AND SEMBCORP MARINE INITIATE TALKS ON POTENTIAL COMBINATION

June 25, 2021

The two Singaporean firms, Keppel Corporation and Sembcorp Marine have entered into a non-binding memorandum of understanding (MOU) to enter into exclusive negotiations with a view to combining Keppel O&M and Sembcorp Marine (Combined Entity). The objective of these discussions is to create a stronger Combined Entity and sustainable value over the long term for Keppel O&M and Sembcorp Marine and their respective stakeholders, in response to dramatic changes in the global offshore and marine (O&M) engineering and energy sectors.
In recent years, there has been a sustained reduction in oil exploration and development activities, which caused a significant reduction in business for the O&M sector. The prolonged downturn has been exacerbated by the impact of COVID-19, the fall in oil demand and prices in 2020, and the global energy transition away from oil. In response, several global peers of Keppel O&M and Sembcorp Marine have pursued consolidations to create scale, retain talent, and more effectively use their asset bases. In particular, such actions aim to position these peers for new opportunities arising from the energy transition.
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. The International Energy Agency recently called for worldwide investment in clean energy to more than triple by 2030, to nearly US$5 trillion per annum. As peers orientate themselves to capture these opportunities, so too must Keppel O&M and Sembcorp Marine. Both companies are also pivoting to the renewables sector. Keppel O&M has secured multiple orders from leading players including two converter stations for TenneT Offshore, two offshore windfarm substations for Ørsted, as well as one of the world’s largest offshore wind turbine installation vessels for Dominion Energy. Sembcorp Marine’s wins include contracts for the Siemens’ Dudgeon Offshore Wind Farm Project (which has been successfully delivered), offshore substation and topsides for the Ørsted’s Hornsea 2 Offshore Wind Farm, and the HVDC offshore converter platform for the landmark RWE Renewables Sofia Offshore Wind Farm.
If completed, the potential combination would create a stronger player to capitalise on growing opportunities in the O&M, renewable and clean energy sectors. By combining the complementary strengths of both businesses, the Combined Entity would be able to accelerate the companies’ pivot towards O&M renewables opportunities. 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.
Under the MOU between Keppel and Sembcorp Marine, it is envisaged that Keppel and the Combined Entity will enter into a strategic partnership, pursuant to which Keppel will hold 50% of a 50-50 joint venture that will be established between Keppel and the Combined Entity (“Strategic Partnership JV”). This would allow Keppel to continue accessing Keppel O&M’s capabilities required for its projects, on terms to be agreed. The scope of the Strategic Partnership JV will be subject to final agreement between the parties concerned. In addition, subject to regulatory review, the Combined Entity will be the preferred EPC partner for Keppel’s projects where the Combined Entity has the relevant expertise.
After this announcement, Keppel and Sembcorp Marine will undertake mutual due diligence and discuss the terms of the potential combination, which is expected to take several months. If the potential combination is completed, it is envisaged that the Combined Entity will be a listed entity, and Sembcorp Marine’s
(Source: Keppel shareholders will hold shares in the Combined Entity, while Keppel will receive shares in the Combined Entity and a cash consideration of up to S$500 million (or a cash component with the economic equivalent effect).
(Source Keppel – Image: Singapore’s Sembcorp’s PPL shipyard at sunset in 2012 – Rene P/energy global news)