Keppel Corp. (KEP), the world’s biggest builder of offshore oil rigs, offered to buy out its real estate unit Keppel Land Ltd. (KPLD) for as much as S$3.23 billion ($2.4 billion), saying it will help diversify revenue.
The rig builder will offer as much as S$4.60 a share for the developer’s stock, the company said in a statement to the Singapore stock exchange today. That’s a premium of 26 percent based on Keppel Land’s last trading price of S$3.65 on Tuesday in the city. Shares of both companies were halted from trading from Jan. 21. The rig maker already owns 54.6 percent of the real estate company.
“It’s a good price,” said Wilson Liew, deputy head research at AmFraser Securities Pte. in Singapore. “Keppel Corp. could be doing this to offset weakness in its other businesses.”
Keppel has restructured its assets in telecommunications and infrastructure businesses last year through mergers and pulling them into trusts. CitySpring Infrastructure Trust, a Singapore piped-gas supplier backed by Temasek Holdings Pte., and Keppel Infrastructure Trust said in November they will merge to form Singapore’s biggest infrastructure-focused business trust.
The plunge in crude prices in 2014 to five-year lows has increased concerns that demand for drilling rigs and floating production facilities may weaken. As projects from the Arctic Ocean to the Middle East come under scrutiny, spending in the oil industry may fall 20 percent this year, according to analysts at Sanford C. Bernstein.
Minimum Offer“We’re doing this because we believe in the long-term fundamentals in property, especially in Asia,” Keppel Corp. Chief Executive Officer Loh Chin Hua said in a briefing today. “We believe urbanization will continue.
We believe it will be a good investment for the group longer term. We have not been shy about taking bold moves, if it’s the right one.”
Keppel Corp. will offer a minimum of S$4.38 per share and in the event it gets 90 percent of the developer, the offer price will be raised to S$4.60 a share, the company said.
Based on the offer terms, a full privatization of Keppel Land would raise fiscal year 2014 earnings per share of Keppel Corp. by 13 percent to S$1.18 per share from S$1.04, the company said in the statement.
Taking Keppel Land private will enable Keppel Group to better streamline its organizational structure, and allocate capital and resources across its core businesses to optimize risk-adjusted returns and enhance shareholder returns, the company said.
“It’s probably got to do with having a bigger balance sheet to perhaps take on bigger projects in the future,”
Ng Soo Nam, Singapore-based head of Asian equities at Threadneedle Asset Management, which oversees about $150 billion globally, said by phone. “There’s got to be a stronger reason than just valuation to take Keppel Land private.”
No offers will be made for Keppel REIT and Keppel Philippines properties, the company said.
The offshore and marine operations made up for 64 percent of Keppel Corp.’s revenue last year, while property contributed 13 percent, according to Keppel Corp.’s annual earnings. Net income from the offshore operations accounted for 55 percent of the total in that period with property at 26 percent.
If the offer is completed, the offshore contribution will be 48 percent and property will rise to 35 percent, Keppel said in a separate statement.
New York Purchase
“Offshore and marine will still be good for us in the medium- to long-term,” Loh said.
Keppel Corp. has yards around the world to make rigs and repair ships -- from Singapore to Indonesia, China, Brazil and Azerbaijan. The company won S$5.5 billion of new orders last year. Its order book was S$12.5 billion at the end of 2014, lower than S$14.2 billion at the end of 2013.
Keppel Land’s core markets of Singapore and China made up 89 percent of sales at the end of 2014, while it is expanding into growth markets such as Indonesia and Vietnam, according to the company.
In July, the developer made its maiden investment in the U.S. with a prime residential project in New York City.
The company is also a key office developer in Singapore with buildings including the Marina Bay Financial Centre, the Ocean Financial Centre and One Raffles Quay in the island’s central business district.