Temasek’s $3b bid in focus as Keppel set to post weak results

FILE PHOTO - A Temasek logo is seen at the annual Temasek Review in Singapore July 7, 2016. REUTERS/Edgar Su

Temasek Holdings’s $3 billion bid to acquire a controlling stake in Keppel Corp will be under scrutiny on Thursday as a big quarterly profit drop at the conglomerate could raise the risk of the state investor dropping its proposal, analysts said.

Keppel last week warned that material impairments relating to its offshore and marine segment (O&M) would hurt profits, which analysts say could breach so-called material adverse change (MAC) clauses of Temasek’s offer.

Analysts said the impairments would typically affect net asset value and net profit after tax, thresholds for which have been set as pre-conditions to an offer.

Temasek declined comment.

MAC clauses can be invoked to end or renegotiate deals, particularly if events occur that are detrimental to the target company.

To meet the threshold, Keppel would need to report S$170-230 million in second-quarter core profits, excluding one-off items, assuming impairments of up to S$150 million relating to its O&M business, Citigroup analysts estimate.

Still, the deal has a long-stop date of Oct. 21, meaning Keppel could make up any shortfall in its third-quarter results, while Temasek also has the right to waive its pre-conditions.

Refinitiv data shows that Temasek owns about 21% of Keppel.

Last October, Temasek offered to buy control, leading to expectations of consolidation in the domestic rig building sector that has been battered in recent years due to low oil prices.

Those expectations were further boosted this June when Temasek stepped in to support a S$2.1 billion rights issue by Sembcorp Marine, Keppel‘s smaller competitor.

Keppel reported first-quarter net profit of S$160 million, down 21% from a year ago. At that time, it said it had not breached the MAC clauses.

Keppel shares have fallen 16% this year to trade at S$5.68, close to the level they were languishing at when Temasek made its conditional bid of S$7.35 per share.

Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.