The deadline for a transformative deal between Keppel Corp and Sembcorp Marine is just days away.
Shares of both companies have surged on expectations that they will decide on combining their oil rig businesses into a separate entity by the end of April, with some expecting further gains.
Sembcorp$SEMBCORP MARINE LTD(S51.SI)$ has jumped almost 50 per cent this year, while Keppel is up nearly 30 per cent as the third-best performer on the benchmark Singapore index.
"The shares could re-rate if the Sembcorp deal comes through," Phillip Securities Research analyst Terence Chua said, referring to Keppel's stock. "The value of the Keppel group without the offshore and marine (O&M) business should increase as working capital will reduce, as will the conglomerate discount."
Amid years of low oil prices, shipyards in Asia have been consolidating and cutting jobs as orders for oil rigs and production facilities slumped. Keppel and Sembcorp Marine entered into talks last year to combine and win more work in the renewable energy sector, which will cut their reliance on the fossil fuel market.
"It is a very complex transaction and it has taken a bit of time for both sides," Keppel chief executive officer Loh Chin Hua said in a quarterly briefing call on Thursday (April 21). "We're making good progress."
Keppel shares were trading up 0.15 per cent at $6.66 at 9.42am on Friday, while Sembcorp dipped 0.3 per cent to $2.91.
Keppel, a property developer and owner of the world's largest oil rig builder, plans to distribute the shares it receives from the merged company to shareholders. The O&M unit contributed about a quarter of Keppel's revenues in 2021, but posted losses for a second straight year.
Sembcorp Marine has run losses for four straight years.
Keppel is among Singapore's state-linked firms restructuring to become asset-light or foray into new economy sectors. The company, founded in 1968, aims to simplify its business by 2030 and manage offshore energy projects and infrastructure assets.
Source:SINGAPORE (BLOOMBERG)
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