Singapore’s Keppel Offshore & Marine and Sembcorp Marine plan to join forces with the aim of creating “a premier global energy player in offshore renewables, new energy and cleaner O&M solutions”.
The duo said on Wednesday that the combined entity would be well-positioned to capture opportunities arising from decarbonisation in the oil and gas sector and from the global energy transition towards renewables, particularly in the areas of offshore wind, and new energy sources such as hydrogen and ammonia.
Compatriots Keppel Corporation and Sembmarine on Wednesday signed definitive agreements for the proposed combination based on a 50:50 enterprise value between Keppel O&M and Sembmarine.
After taking into account the respective capital structures of the two companies, the S$500 million (US$363 million) cash that Keppel O&M will pay to Keppel Corporation and other adjustments, the agreed equity value exchange ratio will result in Keppel and its shareholders owning 56% of the combined entity and Sembmarine shareholders owning 44% on completion.
The proposed merger is subject to various regulatory approvals and expected to be put to respective shareholders for approval in the fourth quarter of 2022. On completion, Keppel O&M and Sembmarine will become wholly owned subsidiaries of the combined entity that will have a new “neutral” name, a Sembmarine official revealed.
“The signing of a win-win agreement on the proposed combination of Keppel O&M and Sembcorp Marine marks a strategic milestone for the offshore and marine sector,” said Keppel chief executive Loh Chin Hua.
“It brings together two leading O&M companies in Singapore to create a stronger player that can realise synergies and compete more effectively amidst the energy transition.”
Merger rationale explained
The companies explained the rationale behind their proposed tie-up.
The O&M sector has faced a prolonged and severe downturn since 2015, exacerbated by the rapid global transition towards renewables and clean energy, as well as significant disruptions during the Covid-19 pandemic.
“Amid this downturn, competition for a shrinking pool of projects has intensified, contributing to an increased level of debt across the industry and necessary equity issuances to strengthen financial positions.
“Additionally, many offshore players have sought consolidation to achieve the scale and synergies needed to become more competitive and build a sustainable order book,” they said.
Although oil prices have rallied in recent months and conditions in the O&M sector are improving, the long-term outlook for the sector is shifting amid the energy transition, the duo confirmed.
“Growing commitments by governments and companies around the world seeking to achieve net zero carbon emissions are driving increasing demand for renewable and clean energy solutions.
“These include areas such as offshore wind, hydrogen and ammonia, in which both Keppel O&M and Sembcorp Marine have built their respective capabilities and track records in the past few years.”
The combined entity will have a “deep engineering heritage” to offer offshore renewables, new energy and cleaner solutions in the O&M sector.
It intends to scale up its footprint in offshore wind energy, a sector that is expected to see global expenditures of S$260 billion between 2021 and 2030, with participation across the value chain including substations and wind turbine installation vessels.
The combined entity will also make “select” early investments in new energy sources, such as hydrogen and ammonia, and in carbon capture technologies, with a view to building successful franchises in these areas for the decades ahead.
One key focus will be on cleaner O&M solutions, specifically for floating production systems and other offshore structures, through innovation and applying new technologies to reduce the carbon footprint of such facilities.
The merged entity will build a global footprint while integrating the operations in Singapore into a centre of excellence focused on high-value-added, specialised projects and modules.
As a single organisation, the collective workforce will benefit from expanded opportunities for career development and growth in the areas of renewables, new energy and cleaner O&M solutions. It will also strengthen Singapore’s position as both a maritime and offshore and marine hub.
Sembmarine chairman Hassan Marican commented: “The proposed combination marks a major milestone in Sembcorp Marine’s strategic business transformation journey since 2015 to stay resilient amid dramatic changes in our industry.
“Sembcorp Marine and Keppel O&M are Singapore’s homegrown marine icons. I am confident the combined entity, with its larger operational scale, broader geographical footprint and enhanced capabilities, will create a leading Singapore player to capitalise on the opportunities in the offshore and marine, as well as the renewable and clean energy sectors.”
Jobs, facilities rationalisation to be reviewed
The contractors said they would preserve operational strength by retaining and attracting offshore and marine engineering talent while engaging with workplace unions, to address labour considerations related to the combined entity — with management admitting that job losses could not be ruled out.
“Both Keppel O&M and Sembcorp Marine have taken a constructive approach toward labour considerations of the combined entity and are focused on preserving operational strengths by continuing to retain and attract local talent, supplemented with international expertise,” the companies said.
Keppel O&M and Sembmarine added they are committed to working cooperatively with their respective labour unions, including continuing workforce development and training and the creation of higher value-adding jobs.
Sembmarine at the end of March had fewer than 9000 staff — below pre-pandemic levels — not including those extra workers it has brought in to complete legacy contracts and the company’s chief executive, Wong Weng Sun, said it was too early to know the impact on its workforce from the proposed combination with Keppel O&M.
He said it is also too early to determine whether there would be any rationalisation of Sembmarine and Keppel O&M's existing yard facilities in Singapore and further afield.
"We will review this once we reach the correct timeframe. As the process goes on, we'll definitely look into efficiencies [and] at the same time also collaboration with our regional and overseas fabricators and shipyards," Wong told Upstream.
"It is [too] early today to mention if we have any other plans other than what we have decided now. We will update when the time comes."
Keppel O&M’s legacy rigs and associated receivables will not be part of the proposed combination and will be sold to a separate Asset Co that will be 90%-owned by other investors, with Keppel retaining a 10% stake.
Also, certain out-of-scope assets — mainly Keppel O&M’s interests in Dyna-Mac and Floatel International — will be retained by Keppel.
Singapore government stake
Temasek, the Singapore government’s investment arm, holds stakes in both O&M contractors, and it will have a 33.5% effective stake in the merged entity.
“We believe the combined business will have the expertise and capacity to accelerate the pivot towards growing opportunities in the renewable and clean energy sectors, and pursue meaningful projects around the world that address the increasing need for greener and cleaner energy solutions,” said Nagi Hamiyeh, head of Temasek's portfolio development group.
“In doing so, it will be able to deliver long-term value creation for shareholders and other stakeholders. We look forward to the support of the shareholders of Keppel and Sembcorp Marine to make this possible.”
The merger is subject to anti-competition approval in some nations where the contractors have operations but Marican told a select briefing that he expects there will be no issues in securing these approvals.