Temasek Said to Weigh Keppel Sale of M1, Office REIT Stakes

(Bloomberg) -- 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.

The state investment company is weighing the possibility of Keppel selling its 19.1 percent stake in wireless operator M1 Ltd. and paring its 44.6 percent 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 ($1.1 billion) at Tuesday’s close, data compiled by Bloomberg show. M1 shares rose 4 percent, 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 meeting to review 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’s marine unit, the world’s No. 1 and No. 2 makers of oil rigs, dropped in 2015 to their weakest levels 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.”

Industry Outlook

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 percent stake in Keppel and a 49.5 percent 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 36 percent in the past year and last week hit the lowest level since 2003.

Keppel Chief Executive Officer Loh Chin Hua said Jan. 21 that M1 is “not a core investment for us,” declining to comment on whether it would put its stake up for sale.

The reason “we choose to sell something is because we think it’s the right time to sell,” Loh said at Keppel’s earnings briefing in Singapore, adding the company is “quite happy” with the earnings contributions from M1. “To be very clear, our cash position is not an issue. We have a very strong balance sheet.”

M1 isn’t aware of any undisclosed information that could explain its share movement, the company said in a Tuesday filing in response to stock-exchange queries. “We decline to comment on market speculation,” Temasek said in an e-mailed statement.

Representatives for Keppel and Keppel REIT didn’t comment, while a spokeswoman for Sembcorp Industries didn’t immediately respond to an e-mail and phone call seeking comment.

--With assistance from Jonathan Burgos.

To contact the reporters on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net Timothy Sifert