Keppel Corporation - OCBC Investment 2019-10-22: Setting The Stage


Keppel Corporation - Setting The Stage

  • Temasek’s unit to make partial offer, subject to pre-conditions.
  • Offer price S$7.35 at 26% premium.
  • Opens the door for bigger things to come.

Temasek’s subsidiary to make partial offer

  • Subject to Pre-Conditions, Kyanite Investment Holdings Pte Ltd (Offeror) intends to make a partial offer to acquire 30.55% of shares in KEPPEL CORPORATION (SGX:BN4).
  • Kyanite is an indirect wholly-owned subsidiary of Temasek Holdings (Private) Ltd, which already directly owns 20.45% of Keppel Corporation. If successful, the partial offer will result in Temasek and the Offeror directly owning 51% of Keppel Corporation and the Offeror Concert Party Group having a resultant shareholding in Keppel Corporation of 52.04%.
  • See Keppel Corp Announcements.

Offer price of S$7.35 at 26% premium

  • If and when the partial offer is made, the Offeror will offer S$7.35 in cash for each share, implying a premium of ~26% over S$5.84, which is the last traded price per share prior to this announcement. See Keppel Corp Share Price.
  • The offer price is also just a 3% shade lower than our fair value estimate of S$7.58 for Keppel Corporation.

Process will take time

  • The Offeror has mentioned that it does not intend to delist or privatize Keppel Corporation; it will remain listed on the SGX-ST. Investors should also note that the partial offer will not be made unless and until all the Pre-Conditions have been satisfied and/or waived on or before 21 October 2020. These include obtaining domestic and foreign regulatory approvals which could take several months.
  • Once each Pre-Condition is satisfied or waived, the Partial Offer process will take two to three months.

Opens the door for bigger things to come

  • There has long been talk of a potential restructuring of businesses under the Keppel Corp and Sembcorp Industries stable such as the merging of the offshore & marine yards. This announcement of a partial offer, if successful, allows Temasek to exercise control over Keppel Corporation.
  • A strategic review of businesses can be undertaken post the successful partial offer and this includes the possibility of a restructuring of businesses as mentioned earlier. It sets in motion a series of potential transactions that may happen, and we note that it is also mentioned in the offer document that creating sustainable value through such actions may take several years.
  • Overall, we view this as a positive development as Temasek is taking a proactive approach in reviewing its portfolio and investments for the longer term.
  • We maintain our Fair Value estimate of S$7.58 on the stock.

OCBC Research Team OCBC Investment Research | 2019-10-22
SGX Stock Analyst Report BUY MAINTAIN BUY 7.580 SAME 7.580