Published May 25, 2009

Keppel sells SPC stake for $660m gain

PetroChina to make mandatory cash offer at $6.25 each for remaining SPC shares

By LYNETTE KHOO

	Email this article
	Print article
	Feedback

(SINGAPORE) Keppel Corp is set to reap a gain of $660 million from selling its entire 45.51 per cent stake in Singapore Petroleum Company (SPC) for $1.47 billion in cash to PetroChina Company, one of the largest oil and gas companies in the world.

The transaction, one of the largest in Singapore corporate history, is also a milestone for PetroChina - being its first cross-border acquisition of a listed company and the first public takeover by a Chinese company of a target in Asia.

The news came after speculation of such a sale had largely died down, with Keppel apparently content to sit on its SPC stake after marking it out as a non-core asset for possible divestment as early as 2001.

But yesterday, Keppel said that it is selling its SPC stake in line with its strategy to divest its non-core assets and concentrate on its core business activities. The group is the world's largest offshore rig builder and a major property developer.

'Over the last 10 years, Keppel has grown SPC, establishing it as a reliable supplier of quality energy products while diversifying its businesses upstream into exploration and production,' said Choo Chiau Beng, chief executive of Keppel.

'This divestment of our stake in SPC would enable Keppel to seize opportunities that would enhance value creation for shareholders.'

The sale at $6.25 per share represents a premium of 24 per cent to SPC's closing price of $5.04 last Friday, a 50.5 per cent premium to its one-month volume weighted average price (VWAP) and an 89.2 per cent premium to its three-month VWAP.

Assuming that it had been effected on Jan 1, 2008, the transaction would have increased Keppel's earnings per share from $0.69 to $1.06 for FY2008, Keppel said.

The conditional sale agreement was entered into by Keppel Corp's wholly owned unit Keppel Oil and Gas Services Pte Ltd and PetroChina International (Singapore) Pte Ltd, an indirectly wholly-owned subsidiary of PetroChina.

The deal is conditional upon PetroChina obtaining the required approvals from the relevant authorities in China.

After the completion of the sale, the Hong Kong and New York-listed firm will make a mandatory cash offer at $6.25 per share for the remaining shares in SPC. However, it intends to maintain the listing status of SPC. Deutsche Bank is acting as the financial adviser to PetroChina.

PetroChina said that SPC will become a new platform for the implementation of its international strategy and 'will provide a broader foundation and stable path for development'. It has no plans to introduce major changes to SPC's business, redeploy its fixed assets or discontinue the employment of employees of SPC and its subsidiaries.

Keppel and PetroChina will also explore opportunities in the offshore oil industry and in other areas of mutual benefit as such opportunities become available, the two companies said.

While SPC had long been seen as a possible divestment target by Keppel, there were indications suggesting that the group was in no hurry to sell the stake. During the 2006 oil and gas boom, Keppel's former chairman Lim Chee Onn said in an interview that SPC provided the group with a reach that stretched from offshore and marine to upstream activities. 'Why should we give that away?' he asked rhetorically then.

Some market watchers wondered yesterday if the recent volatility in oil prices might have led to a change of heart, as falling oil prices have been hitting SPC's earnings since early 2008. If Keppel had wanted to sell SPC, it might have been better to sell the stake when oil prices were hitting US$140-150 a barrel, said one analyst with a local research house.

The sale of SPC by Keppel comes on the heels of another major divestment in the local market. Singapore Airlines earlier this month announced the sale of its entire 80.61 per cent stake in Singapore Airport Terminal Services (SATS).