O&M

O&M: With oil prices now at USD28/bbl, the market is again speculating whether Keppel and SembMarine would be merged by parent Temasek. This is an issue that goes back to a time even before 1999. RHB believes that long-run economics and internal factors argue strongly against the merger. Choosing a path contrary to the good bank/bad bank concept in the rig-building industry runs contrary to the long-term viability of an integral sector in Singapore’s economy.

No economic sense in Keppel-SembMarine merger, or to privatise SembMarine. Keppel and Sembcorp Marine (SembMarine) would probably secure more contracts globally as separate entities. For example, of Sete Brasil’s 29-rig order split amongst five builders, Singapore has won a total of 13. A merged entity might have won only 8-10 orders, thus bringing in less economic benefits to Singapore. The pitfalls of a monopsony are well-documented, and the current duopoly yields a more competitive environment with a greater diversity of smaller supporting companies benefitting Singapore’s economy. Further, RHB thinks that Sembcorp Industries’ (Sembcorp) capital would be much better spent in the high-return-visibility business of building utilities in a power-hungry developing market, rather than privatising SembMarine. It may, however, not have a choice, given Temasek’s 49.7% ownership stake.