Keppel Corporation has confirmed that it has signed a non-binding memorandum of understanding (MOU) with Sembcorp Marine to enter into exclusive negotiations to combine Keppel Offshore & Marine (Keppel O&M) and Sembcorp Marine.
The MOU 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.
The companies believe that, if completed, the potential combination would create a stronger player, better positioned to compete for larger contracts in growing opportunities in the operations and maintenance, renewable and clean energy sectors.
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 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$500m ($372m).
As part of the discussions about the combined entity, Keppel O&M and Sembcorp Marine will also engage with workplace unions to address labour considerations for the combined entity and to continue to attract, develop and retain O&M engineering talent.
Keppel O&M’s interests in Floatel International and Dyna-Mac Holdings as well as Keppel O&M’s legacy completed and uncompleted rigs and associated receivables will be excluded from the combination. Keppel O&M’s interests in Floatel International and Dyna-Mac will be retained by Keppel Corporation.
Keppel has also signed a non-binding memorandum of understanding with Kyanite Investment Holdings, a wholly owned subsidiary of Temasek, to sell Keppel O&M’s legacy completed and uncompleted rigs and associated receivables to a separate Asset Co, which would be majority owned by external investors.
Under the second MOU, Keppel will retain no more than a 20% stake in Asset Co as an investment, while external investors, which Kyanite intends to procure, will hold the balance of at least 80%.
Keppel will receive consideration for the legacy rigs and associated receivables, substantially in the form of credit notes. Asset Co will be independently managed from the combined entity and the general partner of this Asset Co will maintain, complete and monetise the rigs over time.
External investors will provide capital which can be used for finishing uncompleted rigs, which would no longer be funded by Keppel. Keppel’s economic exposure in Asset Co will be reduced over time, as the rigs or Asset Co are sold or securitised when conditions in the rig chartering market improve.