Keppel aims to be back in the "driver's seat" over at a special entity set up to house 13 oil rigs following the merger of its offshore and marine unit with then-rival Sembcorp Marine .
According to Keppel, it plans to do so via a selective capital reduction of this entity called Rigco Holding, in which it holds a 10% stake, $139 million in perpetual securities and some $4.3 billion in vendor notes issued by Rigco.
Upon completion of the capital reduction, which will see all non-Keppel shares cancelled and capital reduced, Rigco will become a wholly-owned unit of Keppel.
By taking control over Rigco, Keppel will also gain control over some $843 million of cash as at end Sept, which can be used to complete half-built rigs.
According to Keppel, it does not intend to re-enter the offshore and marine business. Yet, as the largest economic interest owner in Rigco, Keppel "remains focused" on the monetisation of the legacy assets.
Keppel adds that as part of the existing master services agreement, Seatrium will continue to provide construction, maintenance, and other associated services for the legacy rigs for an initial period of 10 years following the merger with Keppel Offshore & Marine.
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Keppel plans to set up the Keppel Offshore Infrastructure Fund to own and manage the 13 rigs and also its 49% stake in offshore vessel company Floatel as well as to attract external capital from other investors.
Keppel believes by doing so, it can have not just the flexibility to manage the assets but also earn an extra slice of recurring income from asset management fees - in line with its current asset-light strategic direction.
Kepel CEO Loh Chin Hua describes the 13 rigs now held by Rigco as one of the most advanced fleets available in the market today. Half of these rigs are contracted and generating stable cashflows.
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"Amidst the improving conditions in the offshore rig market, with some segments benefitting from utilisation rates of about 90% and improving day rates, securing control over the management and monetisation of our legacy rigs will enable us to reduce our risks as a substantial creditor to (Rigco), and better realise the potential of its assets," says Loh.
Loh adds that a successful selective capital reduction exercise by Rigco will put Keppel "in the driver’s seat" to exert better control of the cash, and accelerate rig monetisation which will unlock funds that can be used to reduce debt, reinvest for growth and reward shareholders.
According to Keppel, the global drilling fleet is ageing rapidly no thanks to years of underinvestment when the market was in a multi-year downturn, leading to a projected shortage of "premium rigs" in the coming years.
"The increasing shortage of advanced drilling rigs, along with the high costs and long lead time associated with constructing new ones, is likely to create attractive opportunities for undelivered rigs from the previous construction cycle and the remaining idle rigs that can be reactivated," says Keppel.
"This trend presents a prime opportunity for Keppel as an asset manager to unlock the potential of its legacy rigs by offering operators a more cost-effective and quicker means of securing additional rigs for their near-term drilling requirements," adds Keppel.
Keppel shares closed at $6.58 on Nov 18, up 0.3%.
