Keppel Corp said it is happy to have swapped the volatile earnings of the offshore and marine (O&M) business for a steady stream of income from its spun-off rigs.
The company is transforming itself into a global asset manager under its Vision 2030 initiative, which has a target to monetise assets worth SGD 5bn ($3.75bn) by the end of this year.
The former offshore giant revealed in a regulatory filing earlier this week that earnings from the O&M business had been very volatile in recent years.
“Over the past five years, it ranged from a net profit of SGD 157m in 2019, to a net loss of SGD 768m in 2020,” the company revealed. “On average, the O&M business sustained an annual net loss of SGD 178m from FY [financial year] 2018 to FY 2022.”
As part of the merger of Keppel’s O&M activities with Sembcorp Marine, its legacy rigs and associated receivables were spun off into a separate Asset Co 90%-owned by other investors.
In return, Keppel received SGD 4.25bn in vendor notes, SGD 120m in perpetual securities and a 10% equity stake in Asset Co with a value of about SGD 499,000.
The perpetual securities, which bear interest at a fixed rate of 10% per annum, have no fixed redemption date, and Asset Co has a right to redeem the perpetual securities after at least five years from their date of issue.
The vendor notes come with a coupon rate of 4%, which translates into approximately SGD 170m of interest income per annum.
“We will also benefit from a redemption premium equal to 5% of the outstanding principal amount if and when the vendor notes are redeemed,” it said.
In addition, amid the improving offshore rig market, Keppel said it was hopeful that the monetisation of the legacy rigs can take place sooner, leading to an earlier repayment of the vendor notes issued by Asset Co.
“More importantly, notwithstanding improving market conditions, we do not think the O&M business has a good fit with Keppel’s Vision 20230 plans, which sees us moving away from lumpy orderbook and property development businesses and focusing on growing recurring income and building scalable businesses that leverage our asset-light model,” Keppel said.
Through the combination of Keppel O&M and Sembcorp Marine, Keppel said it has recognised a disposal gain of approximately SGD 3.3bn and received cash of SGD 500m.
“Together with the vendor notes issued to Keppel from the sale of the legacy rigs to Asset Co, for which we will be repaid over time, as well as the out-of-scope assets, Keppel is unlocking close to SGD 9.4bn of value from the O&M transactions,” it said.
Loh Chin Hua, chief executive of Keppel Corp, said on Thursday that the company “continues to deliver strong value” for shareholders as it executes its Vision 2030 plans.
“Keppel has delivered a total shareholder return of 77.7% ... over a 15-month period from the start of 2022 to end-March 2023,” he said.
