Keppel Investors Flee Stock, Bonds After Failed Temasek Deal

Shares of Keppel Corp. tumbled to close at their lowest level in more than four years after a unit of Singapore state-backed investor Temasek Holdings Pte scrapped its bid to take control of the oil-rig builder.

Keppel’s stock ended 11% lower after slipping nearly 13%, the most intraday since November 2008. It was the worst performer on the Straits Times Index. The firm’s dollar bonds due 2025 declined the most since they were sold in May, according to Bloomberg-compiled prices.

Temasek’s “withdrawal is a surprise,” said Joel Ng, an analyst at KGI Securities (Singapore) Pte. “My base case was for Temasek to lower its offer price for Keppel Corp. in light of the impact of Covid-19.”

Keppel Investors Flee Stock, Bonds After Failed Temasek Deal

Credit Suisse Group AG and Macquarie Group Ltd. downgraded their rating on Keppel’s stock.

‘Not Being Stupid’

Kyanite Investment Holdings, a unit of Temasek, invoked a clause allowing it to withdraw the offer after Keppel’s quarterly loss failed to meet pre-conditions of the bid, it said in a statement Monday. Kyanite in October offered S$4 billion ($2.9 billion) for an additional 30.6% stake in Keppel.

Jin Rui Oh, a director at United First Partners said that Temasek’s withdrawal has set a precedent of the state investor walking away from deals on account of the so-called material adverse change clause.

Investors need to be “more wary of such pre-conditional deals going forward,” he said.

The pulled Keppel deal would be the first significant transaction that Temasek has terminated involving a Singapore-based target company since 2004, according to data compiled by Bloomberg.

“It’s not a light decision to make because there is a risk on the reputational side, although this is an unprecedented time so people will expect it’s not unreasonable for Temasek to walk away,” said Song Seng Wun, an economist at CIMB Private Banking in Singapore. “It’s not about Temasek being in a weaker position – it’s about not wanting to waste bullets unnecessarily and not being stupid.”

©2020 Bloomberg L.P.

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