SINGAPORE – Shares of Keppel Corp plunged more than 12 per cent at the opening bell on Tuesday morning (Aug 11) after Singapore investment company Temasek walked away from its $4.1 billion conditional offer to buy control of Keppel Corp.

This came after Keppel posted a second-quarter net loss of $697.6 million, breaching a precondition for Temasek’s offer.

At 9.10am, shares of Keppel were down 57 cents or 10.6 per cent to $4.83 a share, extending losses of more than 28 per cent since the start of the year. By the midday break, the stock was at $4.89, down 51 cents or 9.4 per cent.

Market watchers said they were surprised by the timing of the announcement, which came much earlier than Aug 31, the date by which Temasek had said it would make its decision.

The withdrawal also came a day ahead of the extraordinary general meetings of Sembcorp Industries and Sembcorp Marine (SembMarine), where it will be revealed if shareholders have approved a demerger of SembMarine from its parent.

Temasek’s role in making a partial offer for Keppel and moving to directly own a stake in SembMarine had been viewed by many as critical for a consolidation of the struggling offshore and marine (O&M) sector.

“It’s a prudent move by Temasek to walk out” of the Keppel bid, said Mr Terence Wong, the chief executive and founder of Azure Capital. “Even without the Keppel deal, Temasek still owns about 20 per cent of Keppel. What’s to stop it from doing a deal down the road?” 

“Besides, today is the day of the vote on the demerger deal. I think Temasek wants the Sembcorp companies’ investors to have all the information before they vote,” Mr Wong said.

“There are strong merits for a demerger. It’s definitely good for Sembcorp Industries’ shareholders as that will cull a bleeding unit. And for Sembcorp Marine… I believe a Keppel-SembMarine merger is just a matter of time,” he added.

Kyanite Investment Holdings, a unit of Temasek, invoked a material adverse change (MAC) clause in pulling out of the Keppel deal, according to a bourse filing on Monday.

The Securities Industry Council of Singapore has confirmed that it has no objection to Temasek doing so.

The MAC clause had mandated that Keppel’s profit after tax must not fall by more than 20 per cent, or below $557 million, over the cumulative four quarters from the third quarter ended September 2019.

However, the clause was breached with Keppel’s latest results. Its cumulative loss after tax for the year to end-June stood at $165 million, hit by $919 million in provisions for Keppel Offshore & Marine’s contract assets, doubtful debt, as well as share of impairment provision arising from its associate, Floatel.

Keppel said on Monday night that the offer was “unsolicited” and that it had not negotiated the terms of the deal, including the MAC clause. It added that “there was no certainty that the preconditions would be satisfied or waived and that the partial offer would be made”.

“Notwithstanding the withdrawal of the partial offer, we intend to engage Temasek, which remains our single largest shareholder, to explore opportunities for strategic collaboration,” Keppel added.

“We continue to believe in the inherent value of Keppel’s business, and have a strong balance sheet and support from our network of banks to finance the group’s operations and growth initiatives,” the company added.

DBS Equity Research analyst Ho Pei Hwa said: “While another offer for Keppel by Temasek over the next 12 months might be less likely, requiring Securities Industry Council of Singapore’s consent under the Takeover Code, we can’t rule out other potential plans on the restructuring of Keppel.”