Temasek said to discuss potential Keppel sale of M1, Reit stakes

[SINGAPORE] Temasek Holdings Pte is discussing options for portfolio companies Keppel Corp and Sembcorp Industries Ltd, ranging from divesting their non-core assets to selling shares, as the two Singaporean rig builders grapple with the oil-price slump, people with knowledge of the matter said.

Temasek is weighing the possibility of Keppel selling its 19.1 per cent stake in wireless operator M1 Ltd and paring its 44.6 per cent interest in office landlord Keppel Reit, the people said, asking not to be identified as the information is private.

The Keppel holdings were worth S$1.6 billion at Tuesday's close, data compiled by Bloomberg show. M1 shares rose 4 per cent, the most since November 2014, to S$2.33 at the close in Singapore on Tuesday.

Temasek executives also discussed the possibility of Keppel and Sembcorp Industries selling stock through rights offerings, the people said.

The options, presented Monday during a regular Temasek meeting to review its portfolio companies, focused on how Temasek can preserve the value of its investments amid a downturn in the oil-rig sector and will be shared with the two companies' boards, the people said.

Orders at Keppel and Sembcorp Marine Ltd, the world's No. 1 and No. 2 maker of oil rigs, dropped in 2015 to their weakest level in six years as falling crude prices crimped demand for drilling equipment. The two companies also face cancellation risks from a major client in Brazil, which is embroiled in a corruption probe and hasn't been able to pay the two Singapore companies since November 2014.

"This year, Keppel might need more working capital for their offshore and marine business," Joel Ng, an analyst at KGI Fraser Securities Pte in Singapore, said by phone Tuesday.

"The problems on the offshore and marine side are starting to become more evident now."

Any action would need to be decided and approved by the companies' boards, according to the people. Temasek is the largest shareholder in the two conglomerates, with a 21 per cent stake in Keppel and a 49.5 per cent holding in Sembcorp Industries, data compiled by Bloomberg show.

The Temasek team told executives at the state investment company that the rig-building industry outlook is likely to remain weak for the next three years, and Temasek may be called on to support any moves taken by Keppel or Sembcorp Industries, the people said. Brent crude, the benchmark for most of the world's oil, has fallen 38 per cent in the past year and last week hit the lowest level since 2003.

Temasek declined to comment in an e-mailed statement. Representatives for Keppel and Keppel Reit didn't comment. A spokeswoman for Sembcorp Industries didn't immediately respond to an e-mail and phone call seeking comment, while a representative for M1 declined to comment.

BLOOMBERG