Steep Loss at Keppel Offshore Throws Shadow Over Acquisition Deal

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Singaporean state-owned holding company Temasek is reviewing its offer to acquire a controlling stake in Keppel Corp., the parent company of offshore shipbuilder Keppel FELS, due to the massive loss that Keppel posted in the second quarter.

Last October, Temasek reached an agreement to acquire an additional 30 percent stake in Keppel Corp., bringing its total to about 51 percent. The agreement’s expiration date is October 21, 2020, and the completion of the transaction is still pending. 

Keppel reported a loss of more than $500 million last quarter, a steep reversal from its net profit of $110 million during the same period last year. The sharp decline in its fortunes was due primarily to a $670 million impairment for the declining value of Keppel Offshore & Marine’s holdings. If not for the impairment, the firm would have posted a profit of $160 million. 

The overall result was not profitable enough to keep Keppel within the bounds of its agreement with Temasek. The terms of the $3 billion deal required Keppel to keep its profits from falling by more than $400 million over the period from October 2019 through October 2020, and Keppel’s leadership admitted that the last quarter’s results may be a material breach of that requirement. 

Temasek has not yet invoked the clause as a reason to cancel or renegotiate the deal, and it said in a regulatory filing that it would make a decision on how to proceed by the end of the month. 

Keppel also faces an effort by UK-based rig operator Awilco Drilling to end the construction contract for a $425 million semisub, the future Nordic Winter. Awilco -which had been struggling to make its next installment payment for the rig – alleges that Keppel breached its contract, allowing Awilco to avoid further payments and claim a refund of $54 million. Keppel denies Awilco’s allegations and has cautioned that it could seek further compensation if Awilco fails to pay its next installment.

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