Smoothing the way for O&M merger must also be about paving a green highway for Sembmarine

LAST week was a busy one for Singapore’s companies on the renewable energy front.

In conjunction with the Singapore International Energy Week, the Singapore government raised the ante on efforts to reach climate change goals, confirmed it is on track for net zero by 2050, and announced it is readying up for low-carbon hydrogen to be a key switch to decarbonise.

Throwing their backs to Singapore’s green ambitions, home-grown energy stalwarts Keppel Corp and Sembcorp Industries also unveiled a slew of developments on this front.

Sembcorp announced the Japan Bank for International Cooperation has agreed to support green hydrogen and ammonia projects developed by Sembcorp and Japanese companies. Sembcorp will also work with Japanese conglomerate Sojitz Corp on renewable energy projects, including green hydrogen production, and Japanese engineering company IHI Corp on a green ammonia supply chain.

Not to be outdone, Keppel revealed the group’s effort to explore green ammonia and renewable energy opportunities by tying up with Indian renewable energy company Greenko Group. It has also joined hands with the National University of Singapore and Nanyang Technological University to develop a first-of-its-kind offshore hybrid system to harness solar, wind, and tidal energy.

It added that it was looking to pursue cross-border interconnections with Cambodia and Laos.

These announcements follow a string of developments on the clean energy fronts from both companies over the course of the year, as they pivot away from carbon-intensive energy businesses and towards the fast-growing green space. Keppel is also hiving off its offshore and marine (O&M) operations, while Sembcorp has already made a clean break from its O&M arm Sembcorp Marine (Sembmarine).

Against that backdrop, Keppel and Sembmarine announced on Thursday (Oct 27) a simplified deal to inject Keppel’s O&M operations into Sembmarine.

Keppel O&M and Sembmarine were previously intending to merge their businesses in a new entity, and the process would have required more approvals.

Both companies cited greater deal certainty and speed in their rationales for the change in the deal structure and terms.

There was less talk, however, about the changes in circumstances since the deal to merge Sembmarine and Keppel O&M was announced. Although the plan for Singapore’s mammoth O&M merger was laid out during the sector’s toughest times, its actual fruition is unfolding in more sanguine times.

Sembmarine and Keppel O&M have scooped up more job wins, thanks to a recovery in the O&M sector and elevated energy prices. If the merger is successful, the enlarged Sembmarine will have an enviable order book of S$18 billion.

Should Sembmarine’s shareholders now jump at a chance to own a larger entity with the potential to ride a new wave of fossil fuel demand? Will Sembmarine be a receptacle for the unloved brown operations of its former parents? Or will taking a unit off Keppel’s hands put Sembmarine in a position to outmanoeuvre Keppel in the green energy space in the future?

Investors must look further forward – to the need for Sembmarine to begin competing head-on with Sembcorp and Keppel for renewable energy projects.

A post-merger Sembmarine would have multiple green projects – over 30 as at Oct 26 – under execution. These are listed in three broad silos: offshore renewables, new energy (hydrogen, ammonia and carbon capture technologies) and cleaner O&M solutions.

It would help investors if the board of Sembmarine could set out how the company hopes to compete for more jobs and capture the strong order momentum in offshore wind farms and new energy sources such as hydrogen, as well as better withstand the current headwinds posed by geopolitical uncertainties, recessionary and inflationary pressures.