KEPPEL CORP - Restructuring II Begins .....

Exactly one month after its new CEO declared there were no sacred cows: that operations where we were unlikely to extract significantly more value will be sold, Keppel Corp (Kep C) has agreed to sell its entire 45.51% stake in Singapore Petroleum (SPC) to PetroChina for S$1.47 bln (Rmb 6.93 bln) or $6.25 per share. (Choo Chiau Beng, CCB succeeded Lim Chee Onn as CEO at the start of the year.)

Assuming the deal is completed by the deadline July 24th (PetroChina to secure approvals from Chinese regulators), PetroChina will launch a mandatory conditional offer for the remaining shares at the same price, conditional on it getting more than 50% of SPC.

PetroChina advised by Deutsche Bank, said in its statement it intends to use SPC as the “platform for the implementation of its international strategy and to provide a broader foundation and stable path for development”. In addition, PetroChina said it intends to maintain the listing status of SPC.

China’s state owned companies have been on a shopping spree for overseas assets, especially in the commodities arena.

Kep C had sold 125 mln SPC shares to the Indonesian group called Satya Capital at $1.50 each in 2003; but had between 2005 and Apr’07 bought back almost 50 mln shares at as high as $5.77 each. Satya on the other hand, had fully divested its SPC shares by Jun ’07, with the last 115 mln shares sold at $5.32each.


The Offeror is wholly-owned by PetroChina Company (PCL) which is listed in Hong Kong, Shanghai and New York. PCL is one of the largest oil and gas companies in the world. State-owned China National Petroleum Corporation (CNPC) is the parent company of PCL.

1. Although we had earlier thought the SPC was the least “un-sacred” among the assets likely to be divested by Kep C, and the offer price being some 29% off its 2007 peak (when oil was at US$145 per barrel), the divestment (probably the easiest to execute) is a pleasant surprise nonetheless and will likely be well received by investors.

2. We upgraded Kep C to a BUY since CCB hinted of Restructuring II, despite Kep C then encountering some “technical resistance” at the $6 level.

3. Divestment plans reminded us of Kep C’s Restructuring I exercise in the aftermath of the Asian Crisis, when the divestment of Keppel Bank led to the privatization of Keppel Fels, which had by then absorbed Hitachi Zosen, Keppel Shipyard, to form the formidable Keppel Offshore & Marine, a leader in the offshore sector that it is today.

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