Keppel Corp reported a net loss of $537 million for 1H2020, reversing a net profit in 1H2019 of $356 million. The loss was caused by $930 million of impairments mainly related to Keppel Offshore & Marine’s (Keppel O&M) stranded assets, receivables, stocks and share of impairment provisions from Floatel. Excluding impairments, Keppel Corp would have registered net profit of $393 million for 1H2020, 5% higher y-o-y.
The reversal of a net profit to a net loss y-o-y in 1H2020 implies that Keppel Corp has not been able to fulfil one of the preconditions for Temasek Holdings’ partial offer made in October last year. According to the offer document, the no material adverse change clause states that profit after tax (PAT) must not fall by more than 20% from $696 million, being the PAT for the 12 months to Sept 20, 2019, and net asset value (NAV) must not fall by more than 10% from the NAV as at Sept 30, 2019. When approached for confirmation, Temasek Holdings declined comment.
The impairment has hit Keppel Corp’s shareholders equity, causing NAV to fall 5.6% as at June 30, 2020, from Sept 30, 2019. As a result gearing has risen to 1x, from 0.85x as at end-2019.
Included in the $930 million of impairments was $228 million from Keppel Corp’s share of Floatel’s vessels, $10 million from its investment in Floatel, $18 million from KrisEnergy, and $421 million from contract assets (rigs, drillships etc) because customers were not able to take delivery.
In a sombre results briefing, Keppel Corp group CEO Loh Chin Hua looked forward to better times: “We have mentioned in Vision 2030 various steps we’re going to take in order achieve this [vision]. One of the steps is to actively turn our property landbank. The group has a considerable sized landbank in China and Vietnnam; we can build up to 45,000 units. We’ve been looking closely at how to activate this landbank, through development, joint-ventures and outright sales. We’ve been getting some of these assets derisked and ready, and [some] might be suitable candidates to monetise through various REITs and trusts we have.” Loh adds that he is looking at an ROE of 15% in the next three to five years and believes this is achievable through Vision 2030.
Keppel Corp announced an interim dividend of 3 cents, despite its loss as impairments are non-cash items. “This is something the board debated at length. We see losses in 1H2020 are primarily driven by huge impairment in Keppel O&M but if you exclude that, the group has improved on its performance in terms of net profit in 1H2020 and our cash outflow is smaller. We decided to pay a very small interim dividend. Last year it was 8 cents per share, and this year it’s smaller and something we can still afford,” Loh says.
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Keppel Corp's share price closed at $5.40 on July 30, down more than 20% year-to-date. Temasek's preconditional partial offer was at $7.35.
