Temasek Holdings’ decision to drop its partial offering for Keppel Corp could be because it needs to spend the money elsewhere, a top local analyst has suggested.
On Monday the state-backed fund took the market by surprise when it confirmed it would not proceed with its bid to take a controlling stake in the domestic rig-builder.
“We can only surmise that Temasek, despite its large balance sheet, wants to conserve cash for its other portfolio companies at present,” said UOB Kay Hian offshore analyst Adrian Loh.
“At the time of the initial partial offer in October 2019, the world and Singapore was in a much different place given that Covid-19 had yet to rear its head,” he said.
Temasek has had to contend with the capital requirements from national aviation icon Singapore Airlines (SIA) and Sembcorp Marine, among others.
The city state’s airline has recently completed a SGD 15bn ($10.9bn) capital raising exercise from a rights issue and convertible bond that was partially underwritten by Temasek via its 55% stake in the company.
Meanwhile, Temasek has already given its backing to Sembcorp Marine’s SGD 2.1bn recapitalization plan which was recently overwhelmingly approved by shareholders.
In addition, Loh said the Covid-19 pandemic coupled with the downturn in the oil and gas industry – which has affected the Chinese and Korean shipyards as badly as Singapore’s – may have given Temasek cause to “believe that it has time on its side to strategically position and consolidate its shipyard investments”.
But not all is lost for Temasek according to Loh who says that that neither the original partial-offer announcement nor the offer withdrawal contained any moratorium clause.
“Thus, there is a chance for Temasek to return to the table with a revised offer in the next 6-12 months, in our view…and that there is no secondary wave of COVID-19 infections.”
Keppel has already confirmed that notwithstanding the withdrawal of the partial offer, it intends to engage with Temasek, which remains its largest shareholder, to “explore opportunities for strategic collaboration”.
Temasek may also be able to increase its stake in Keppel Corp at a lower cost following the sell-off in its shares following the decision to walk away
Keppel Corp’s shares fell to SGD 4.80 on Tuesday to its lowest close in more than four years. The last time it ended trading below this level was in February 2016.
The company has also suffered a wave of downgrades in the wake of Temasek’s decision from the likes of DBS, Singapore’s largest bank, as well as Credit Suisse and Macquarie Group.
KGI Securities analyst Joel Ng agreed with the consensus that Temasek’s decision would be negative for Keppel’s share price in the “short term”.
“But we expect that to be a buying opportunity. Keppel has done a good job diversifying beyond offshore and marine over the past decade, such as into data centres and sustainable urban development projects,” he said.
UBS analyst Cheryl Lee said that while Keppel’s valuations are attractive and that the offshore and marine sector is strategic to Singapore, the sector needs restructuring.
“We think bold restructuring is required, regardless of who the driver of the changes might be,” she said.
