A merger between Keppel Corp’s offshore arm and one of its South Korean rivals could be an option for the Singapore company, a local analyst has suggested.
The rig builder announced earlier this week that it would carry out a strategic review of its yard operations in the face of the industry downturn.
Keppel, which stressed that the strategic review was imminent and is expected to be concluded in a few months’ time, will explore both “organic and inorganic options”.
Organic options include reviewing the strategy and business model of Keppel Offshore & Marine, assessing its current capacity and global network of yards and restructuring to seek opportunities as a developer of renewable energy assets.
Inorganic options would range from strategic mergers to disposal.
Pei Hwa Ho, offshore analyst at Singapore’s largest bank DBS, said inorganic options could be extended to “cross border partnerships” especially with its South Korean peers in the “battle to fight against lower-cost Chinese peers”.
“Some synergies could be created as well, for instance, Korean yards could tap on Keppel’s global network of yards while Keppel leverages on Korea’s lower steel cost to build hulls,” she said in a note to investors.
Battle in fight against lower-cost Chinese yards
“This will be a game changer for the shipbuilding industry, if global shipyards decide to collaborate rather than compete,” she said.
But Ho argues that the possibility of a disposal of Keppel Offshore & Marine to Chinese yards was low given the “technical know-how protection and Singapore’s trading hub status”.
Ho also said she “could not rule out” a potential domestic yard merger with Keppel’s Singapore peer, Sembcorp Marine.
“We believe a merger ... would combine their core competencies and world-class facilities, thus strengthening their franchise and creating room for further cost rationalisation,” she said.
“Keppel could continue to own a stake in the combined entity or dispose of its offshore arm completely. The latter could be deemed more favourable, freeing it from the drag of the offshore and marine industry.”
In any case, Ho said the restructuring of Singapore’s yards is “much needed” in view of the prolonged structural downturn and should “bring some cheer to the market that has lost patience waiting for a recovery”.
DBS has upgraded Keppel Corp to "buy" from "hold" with a 12-month price target of SGD 5.50, saying that the strategic review represented “some light at the end of the tunnel”.
