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MERGERS and acquisitions (M&As) should see a pick-up this year, with PACC Offshore and Sembcorp Marine as prime candidates, said a Maybank-Kim Eng Research report on Friday.
"For 2016, we see M&As accelerating in the oil service industry, where some stocks are so devalued that owners may just decide to privatise," the brokerage pointed out. "In Singapore, there could be more targets than acquirers as most players are small and highly leveraged."
It views PACC Offshore as a strong privatisation candidate, with the company's share price hit by missed earnings and the downturn in oil prices. The Kuok Group owns just over 80 per cent of the company. "Trading liquidity is low and we see no need for tapping equity markets as parent Kuok Group is financially strong."
The brokerage also flagged that if conditions deteriorate, Sembcorp Marine may require additional funding to sustain its operations. "We see a possible privatisation by its 61 per cent-owned parent, Sembcorp Industries or even Temasek Holdings." Temasek is the majority shareholder of Sembcorp Industries.
A privatisation would allow more efficient capital allocation by its parent, the brokerage noted. "Rig-building is a key strategic industry for Singapore. Temasek Holdings may have strong long-term strategic plans for the company. A Temasek-led privatisation will also relieve SCI (Sembcorp Industries) of the additional strain that it may have to carry if it were to undertake the privatisation."