Keppel unveils US$658m partial sale of asset, but its stock tracks market slide

Singapore

NEWS of a US$658 million partial stake sale held in the world's first-ever converted floating liquefied natural gas vessel (FLNG) failed to maintain investor interest on Thursday in large-cap counter, Keppel Corporation, as it tracked a broad-market slide to close four cents lower at S$6.33.

Keppel Corp disclosed before market opened on Thursday, it has signed together with Golar LNG and Kansas-based engineering outfit Black and Veatch (B&V), a deal involving a sale and purchase of a stake in Golar Hilli LLC (see clarification note).

The deal calls for an equity interest in Golar Hilli LLC, the holding entity for the recently converted FLNG, Hilli Episeyo, to be sold by the three named parties to Golar LNG Partners in exchange for US$658 million, less net lease obligations.

Golar LNG Partners is a vessel owner-operator backed by Golar LNG, the entity that has commissioned Keppel and B&V for the engineering and yard work on the FLNG conversion.

Keppel will pare its effective interest to 5 per cent of common units and 10 per cent each of Series A and Series B special units.

Common units will be entitled to cash flows from the first 50 per cent or two out of four liquefaction trains contracted to the end clients of the FLNG.

The returns on Series A units are linked to cash flows associated with oil price-linked elements of the tolling fee tied to the eight-year contract with the end clients; the payback on Series B special units is tied to the cash flows drawn from future expansion of the contracted capacity to end clients beyond the first two trains.

One analyst told The Business Times the completion of the equity transfer to Golar LNG Partner is timed after the handover of Hilli Episeyo from Keppel to Golar LNG Partners. This equity transfer will also mark the completion and delivery of Singapore's first converted FLNG.

The analyst described this equity transfer in Hilli Episeyo as akin to a real estate developer divesting part of its initial investment in order to re-invest in subsequent projects.

Keppel and its engineering partner, B&V, have two further standing FLNG deals with Golar LNG, the entity behind the limited partnership, Golar LNG Partners.

The expectation is that at least part of the stake sale proceeds may go towards funding the execution of two further FLNG deals.

The completion of the equity transfer would thus far spell Keppel's first success in breaking in with the high value-add FLNG engineering, procurement and construction market.

This may have contributed to an initial bump in Keppel's share price to S$6.40 during Thursday morning trade, up three cents from Wednesday close.

But one broker attributed the counter's subsequently sluggish performance to a "lethargic broad market". "The market is still trying to digest the aftermath of negative spill-over from Ezion's trading suspension ... Trading liquidity has receded and investors have ignored any good or bad news on the corporate front," the broker said.

Also hurting investor confidence in stocks with offshore and marine exposure was a softening of oil prices overnight.

US West Texas Intermediate crude futures fell after data released by the Energy Information Administration showed US crude output rose to 9.5 million barrels per day from 9.4 million barrels a week earlier.

Analysts have pointed to certain upstream projects being revived with oil prices trading in the US$40s-US$50s band over the last few months, which is a positive sign for Singapore's offshore and marine players. But amid this persistently low oil price environment, oil companies like Shell and Petronas have reportedly indicated the intent to diversify into renewable energy.

Keppel Corp fell to an intraday low of S$6.31 before paring losses to close at S$6.33, down four cents. Over 3.2 million shares changed hands compared to a three-month average trading volume exceeding 2.7 million shares.

Clarification: Keppel Corp has clarified that the deal called for an equity in Golar Hilli LLC to be sold by Keppel, Golar LNG, B&V to Golar LNG Partners. It also added details on the components of the stake that will be sold and background on the returns or payback for the common and special units.