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Temasek moves to raise stake in Keppel Corp to 51% with partial offer at $7.35 per share

Stanislaus Jude Chan

SINGAPORE (Oct 21): Temasek Holdings is moving to increase its stake in Keppel Corporation to 51%, and undertake a “comprehensive strategic review” of its businesses.

Temasek already currently directly owns 20.45% of Keppel. And it is now making a partial offer, through indirect wholly-owned subsidiary Kyanite Investment Holdings, to acquire an additional 30.55% of shares in Keppel at $7.35 each.

This will result in Temasek and Kyanite directly owning 51% of shares in Keppel.

Temasek says it intends for Keppel to remain listed on the Singapore Exchange (SGX). However, it will work with the board of directors of Keppel to undertake a comprehensive strategic review of its businesses with the objective of creating sustainable value for the conglomerate’s shareholders.  

In order to facilitate such a strategic review, Temasek adds that Kyanite may propose new directors to Keppel’s board of directors after the close of the partial offer.

However, the government-owned investment firm stresses that its long-standing governance model is not to involve itself in the operating or business decisions of its portfolio companies.

“These are properly the responsibility of the boards and management teams of the companies,” Temasek says.

The offer price implies a premium of around 26% to Keppel’s closing price of $5.84 on Oct 18. It also represents a premium of around 21 to its volume weighted average price (VWAP) of $6.07 for the 3-month period up to Oct 18.

As the Keppel group operates businesses globally and in certain regulated industries, approvals from various regulatory agencies – both domestic and foreign – will be necessary before the partial offer can be made.

The making of the partial offer is also subject to the consents of counterparties to material contracts which a Keppel group company is party to.

It is also subject to Keppel group’s financial performance and condition not deteriorating meaningfully over the period.

“The partial offer reflects our view that there is inherent long term value in Keppel’s businesses, notwithstanding the challenges presented by the current business and economic outlook,” says Tan Chong Lee, president of Temasek International and director of Kyanite.

“The partial offer can only be made after the pre-conditions have been fulfilled or waived, and this may take several months,” he adds. “For the partial offer to be successful, it will require both majority approval by shareholding of the votes cast and acceptances of not less than 30.55% of the total issued shares.”

Keppel on Oct 17 reported earnings of $159.3 million for 3Q19 ended September, down 29.7% from $226.6 million for the same period last year.

This translates to earnings per share (EPS) of 8.8 cents for 3Q19, compared with EPS of 12.5 cents for 3Q18.

The decline in earnings was due primarily to the absence of gains from the group’s divestment of a commercial development in Beijing, as well as higher net interest expenses. This was partially offset by higher contributions from associated companies and property trading projects in China and Singapore.

Revenue for the quarter surged 60% to $2.07 billion, from $1.30 billion in 2Q18. This was spearheaded by higher recognition from offshore and marine, property and infrastructure projects, coupled with increased sales in the power and gas business and the consolidation of M1’s results.

See: Keppel Corp posts 30% fall in 3Q earnings to $159.3 million

Keppel had called for a trading halt before market open on Monday, pending the announcement.

Morgan Stanley is acting as Temasek’s sole financial adviser.