Keppel Limited

[Shiyi]

Will this result in Temasek walk away from its partial offer?
Does anyone know what's the hurdle rate?

[¯|_(ツ)_/¯]

27 July 2020 Termination Doha North Sewage Treatment Works - Keppel 
https://links.sgx.com/FileOpen/KCL%20Ann...eID=625040

The DNSTW was a Design-Build-Operate project awarded by Ashghal, the Public Works Authority of Qatar (the “Client”). The project comprising of wastewater treatment, water reuse and sludge treatment facilities was handed over in phases to the Client over 2015 through 2017; and was in the 10-year operation and maintenance phase.
Following the implementation of a new framework contract by the Client to operate and maintain the sewer network and its associated assets in the State of Qatar, the Client terminated its contract with KSES in respect of the DNSTW (“DNSTW Contract”). 

Wear mask and keep your social distance, everyone

[weijian]

Will this result in Temasek walk away from its partial offer?
Does anyone know what's the hurdle rate?

This is probably the billion dollar question on everyone's minds, looking at all the first few (repeated) questions in the QnA.

From what we can see - Temasek is doing a certain degree of National Service (in taking the lead to review of the business direction of Keppel Corp as the business context of the whole of Singapore Inc) but they are a fund manager with profit intent as well.

The partial offer was offered back in Oct2019 and hell lotsa things have changed since then. My back of the envelope guess is that Temasek will not walk away but the offer might have to be revised based on the "new normal".

Transcript of the Question & Answer Session 

Question from Teo, retail investor
With a first half 2020 net loss of $537 million and impairments of $930 million, does management believe that there is now material adverse change (MAC) to its business in relation to the pre-conditions of Temasek’s partial offer? Thank you. 

LCH: Based on the net profit of the second quarter that was adversely impacted by impairment provisions, we believe that the 20% threshold in the MAC clause in respect of net profit after tax has been crossed, which means that the MAC pre-conditions in Temasek’s pre-conditional partial offer has not been satisfied as of today. However, we are unable to comment on Temasek’s preconditional partial offer and the action that Temasek could take resulting from the non-fulfillment of this pre-condition. 

1H2020 QnA transcript: https://links.sgx.com/FileOpen/KCL%202Q_...eID=625850

[ACTIVIST SPEAKS]

Temasek says they are willing to take a drop in NAV up to 10% ($1.12 billion) but also has a PAT drop hurdle of 20% ($139m). PAT and NAV are mathematically interlinked in the same financial reporting period. If Temasek is willing to take $1.12 billion NAV deviation, then logically they must accept the similar absolute drop in PAT.

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Interium 3 cents dividend (vs 8 cents)
xd 7 Aug 2020
https://links.sgx.com/1.0.0/corporate-an...746b275603

Rev $3.1b (vs 3.3b)
Operating loss $149m (vs +482mb)
Net loss $537m (vs +356m)
*$900m impairments related to Offshore & Marine business
(click for 1H report)
(click for ppt)
(click for transcript)

Wear mask and keep your social distance, everyone

[Shiyi]

Does anybody know the long stop date for this deal?
For a more level-playing field, Temasek should come forward to make its decision known.
Alternatively, KepCorp should be suspended until a final decision is announced.

[cfa]

Temasek also hope to buy cheaply , just a matter of fact . Hope fund managers will continue to be patient .

[weijian]

Temasek says they are willing to take a drop in NAV up to 10% ($1.12 billion) but also has a PAT drop hurdle of 20% ($139m).  PAT and NAV are mathematically interlinked in the same financial reporting period.  If Temasek is willing to take $1.12 billion NAV deviation, then logically they must accept the similar absolute drop in PAT.

That is true. I guess that there is probably more to that? Investors like Temasek know that there is a difference between the asset (in a way represented by NAV) and the earnings power (in a way represented by PAT). The massive impairments are more towards the asset portion of the consideration. The earnings power of Keppel Corp has of course deteriorated as the write down suggests. But from Oct2019 to now, the earning power of Keppel probably didn't change much as we could argue that the write down is a lagging indicator.

I think in the days to come, there may be some good lessons to be learnt for all OPMIs.

[ACTIVIST SPEAKS]

Temasek to decide by 31 Aug whether to proceed with partial takeover of Keppel. Need to see the results of SCI/SCM rights EGM??? No point increasing Keppel stake if SCI/SCM EGM fail to pass???

It is a pity that PAT is used as the 20% hurdle for earnings deviation as impairment will also be included. Surely that cannot be the Temasek's intention as there is separate 10% hurdle for NAV drop (which will include asset impairment).

Bad optics if Temasek walk away from Keppel partial takeover as both NAV hurdle was not breached and operating profit was higher than previous quarter.

[Shiyi]

Have there been any precedents that offeror adjusted downward the offer price
due to"material adverse change"?