Temasek Bids for Controlling Stake in Keppel Group in S$4.1B Deal

Singapore’s Temasek Holdings has made a bid to take a controlling stake in Keppel Corp through an offer that values the engineering, infrastructure and real estate group at S$4.1 billion ($3 billion).

If successful, the offer will give the state investment holding firm majority control of Keppel by increasing its existing 20.45 percent stake to 51 percent.

Temasek, which managed a portfolio worth $313 billion as of the middle of this year, said in an announcement that should the offer go through, it intends to work with Keppel’s board of directors to undertake a  “comprehensive strategic review of its businesses”.

The state-owned investor, whose CEO — Ho Ching — is married to the country’s Prime Minister, indicated that the review may result in strengthening or refocusing certain business through partnerships, acquisitions, disposals, or mergers.

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

Keppel attributed a 30 percent fall in net profit in the third quarter of this year partly to the absence of gains made from property divestment in China, which had boosted the company’s 2018 performance. The group’s 2018 annual report had also noted that macroeconomic volatility, slowing global growth and fluctuating oil prices would present challenges in 2019.

The move by the government holding firm comes four months after Temasek-backed CapitaLand completed its merger with stablemate Ascendas-Singbridge in a move which consolidated the two largest real estate firms controlled by the and developer CapitaLand that created a real estate behemoth with over S$123 billion in assets under management.

Paying a 26% Premium

Under the terms of the offer, an indirect wholly owned subsidiary of Temasek is offering to buy 30.55 percent of Keppel Corp’s shares at S$7.35 percent per share.

The offer by the state-backed giant represents a premium of 26 percent over Keppel Corporation’s share price of S$5.84 after trading was halted on 18 October, and 21 percent over the three-month volume weighted average price of S$6.07.

For the offer to be successful, it will need to be approved by international and domestic regulators as well as getting the nod from than 50 percent of shareholders and acceptances of 30.55 percent of the total number of issued shares.

Should the offer meet these conditions, Temasek will gain a controlling stake of the conglomerate that made S$5.4 billion in revenue in the nine months up to September, of which S$1 billion was in real estate development through the conglomerate’s property arm, Keppel Land.

A longstop of 21 October 2020 has been set for regulatory conditions to be satisfied, after which the partial offer will be made to shareholders.

If completed, Temasek indicated that it had no plans to privatise Keppel, which would remain listed on the Singapore stock exchange.

Speculation about Temasek’s Intentions Mounts

Analysts cited by The Business Times said that the offer price is “reasonable” given the length of the process, while the move has attracted speculation from some quarters about the state investor’s rationale.

With shipbuilding and offshore oil rig construction making up 27 percent of Keppel’s overall revenue, Reuters cited an analyst from the Bank of Singapore who suggested the deal was related to a rumoured merger between Temasek-backed Sembcorp Industries and offshore and marine unit Keppel O&M.

The consolidation would follow a trend, especially in China and South Korea, for mergers in the marine and oil industry.

Just four days ago, Keppel announced a trio of independent director appointments that may indicate a broader sweep.

The three new independent directors – Teo Siong Seng, Tham Sai Choy and Penny Goh – come from backgrounds in shipping, digital technology, and real estate.

Comments made by Temasek International investment group joint head Nagi Hamiyeh last week hint that the move may have more to do with more general consolidation efforts, with the investment chief highlighting future technologies as playing a key role.

He told Bloomberg News that that portfolio companies like Keppel were seeking ways to “re-purpose some of their businesses to try and grasp the demands of tomorrow, such as potentially floating data centres, offshore wind platforms, and others.”

With a joint venture between Keppel Corp and Singapore Press Holdings having bought out and delisted 5G telco M1 in March, Keppel DC REIT has been ramping up its data centre acquisitions with at least six acquisitions over the past year and a half.

Just last month, the REIT’s manager said that the trust was set to acquire a pair of Singapore data centres for a combined S$585.1 million, with the acquisition boosting the REIT’s portfolio to 15 facilities.