Keppel identifies S$17.5b of assets that can be monetised over time

Singapore

KEPPEL Corporation has identified assets valued at S$17.5 billion that can be "monetised over time and channelled towards growth initiatives". It will seek to unlock value for S$3-5 billion worth of these assets over the next three years.

Speaking at a media and analyst briefing to reaffirm the company's Vision 2030 roadmap, Keppel CEO Loh Chin Hua said these assets include landbank, non-core assets such as oil rigs, and funds. Their values are based on the group's balance sheet as at end-June.

Shares of Keppel closed at S$4.30 each on Tuesday, giving the group a market capitalisation of S$7.5 billion.

The assets identified for monetisation do not include Keppel's business platforms or fixed assets such as its offshore and marine (O&M) yards or its trust holdings. But Keppel said it will commence a strategic review of the O&M business. The company said that it is now exploring both organic and inorganic options amid the sector's "challenging environment". A slump in oil prices has weighed on the global oil and gas industry.

While declining to disclose specific details, Mr Loh said that "all options are available to the group" - including the highly-speculated merger of Keppel O&M with rival Sembcorp Marine, as well as a complete divestment of the segment.

Organic options include reviewing the strategy and business model of Keppel O&M, assessing its current capacity and global network of yards and restructuring to seek opportunities as a developer of renewable energy assets; while inorganic options would range from strategic mergers to disposal.

Keppel's Vision 2030 was unveiled in May and aimed to redefine its businesses into four key segments - namely energy and environment, urban development, connectivity and asset management.

With its latest update, Keppel chairman Lee Boon Yang said the company is now aiming for an "asset-light model" and is taking a disciplined approach towards capital allocation while continuing to recycle capital to enhance the group's overall return.

KGI Securities analyst Joel Ng said Keppel's providing of "concrete numbers" is timely as it addresses long-standing investor concerns about the quality of the group's assets, especially as far as the O&M sector is concerned.

The shortcomings of the sector were exemplified in Keppel's financial results for the second quarter ended June, which saw the company book its deepest quarterly loss in two decades of S$697.6 million on the back of S$919 million worth of impairments for Keppel O&M's contract assets, doubtful debts, as well as Keppel's share of impairments arising from its associate Floatel.

Without the impairments, Keppel would have had a net profit of $222 million for the quarter, up 45 per cent from a year ago.

After the announcement of the results, Temasek Holdings withdrew a pre-conditional S$4 billion partial offer for Keppel on the grounds of a breach in the Material Adverse Change (MAC) clause of an agreement mandating that Keppel's profit after tax must not fall by more than 20 per cent, or below S$557 million, over the cumulative four quarters from the third quarter ended September 2019.

In response to queries on the updated Vision 2030 being a response to the falling through of Temasek's bid, Mr Loh said the update was "an update for the market, (and) not a change" from its original blueprint that was announced back in May when Temasek's offer "was still on the table".

He added: "The asset monetisation is driven by a need to reposition the group and take advantage of opportunities, with the long-term objective of moving our share price closer to the sum-of-parts valuation."

Mr Ng also noted that Keppel's shares are down 36 per cent year to date, making it the seventh worst-performing stock on the Straits Times Index. "Keppel's current share price is reflective of concerns among investors about the fiscal impairments and asset quality of the O&M sector," he said, adding that the key takeaway for investors from the update should be the company's review of its O&M segment.