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Keppel Sees Acquisition Opportunities as Rig Prices Slump

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Keppel Corp. CEO Choo Chiau Beng
Choo Chiau Beng, chief executive officer of Keppel Corp., speaks during a news conference in Singapore on Jan. 24, 2013. Photographer: Munshi Ahmed/Bloomberg

Jan. 25 (Bloomberg) -- Keppel Corp., the world’s largest oil-rig maker, said there are opportunities to buy companies even as the entry of Chinese shipyards creates a price war in the market for offshore exploration.

“2013 is expected to be an extension of previous years, laden with uncertainties and potential risks,” Chief Executive Officer Choo Chiau Beng said yesterday in Singapore, where the company is based. “However, in navigating such an environment, there will also be opportunities ripe for acquisitions,” Choo said without elaborating.

Keppel may consider buying a yard in China as the world’s second-largest economy boosts offshore drilling to meet its energy demand, Choo said last month. Competition with Chinese and South Korean shipyards has suppressed margins, he said yesterday as Keppel reported a 22 percent drop in fourth-quarter net income.

With orders for new ships plunging to an eight-year low in 2012, China Rongsheng Heavy Industries Group Holdings Ltd. and its local rivals are foraying into the offshore business, lured by a market that will reach about $328 billion in 2017. The new entrants are lowering prices to grab contracts, hurting margins at Keppel Corp. and Sembcorp Marine Ltd., the world’s two-biggest rig makers.

Shares Rise

Keppel shares rose 1 percent to close at S$11.45 in Singapore, the highest since Oct. 8. The stock has advanced 4.1 percent this year, compared with the 3.2 percent gain in the benchmark Straits Times Index.

“The China risk is becoming increasingly recognized,” analyst Vincent Fernando at Religare Capital Markets in Singapore said in a note today. This highlights “the risks” for Singapore yards, he said.

The company, which already has one yard in China making parts for oil rigs, will seek out acquisitions if the government opens offshore projects by state-owned enterprises to foreign companies, Choo had said.

Keppel’s latest acquisition was a 20 percent stake for $115 million in KrisEnergy Holdings Ltd., which is exploring and developing fields in Southeast Asia.

“We only look at attractive acquisitions,” Choo said. The company yesterday reported fourth-quarter profit totaled S$305 million ($248 million) in the three months ended Dec. 31, compared with S$389 million a year earlier. Sales climbed 7.1 percent to S$3 billion.

Margin Narrows

Profit at the offshore and marine unit dropped 15 percent from a year earlier to S$212 million in the fourth quarter, the company said. Operating profit margin narrowed to 13 percent in three month period, compared with 21 percent a year ago.

Keppel reiterated yesterday that it expects an operating margin of between 10 percent to 12 percent for the offshore unit.

The global onshore and offshore plant construction market is expected to rise to $1.26 trillion in 2017 from $989 billion in 2012, according to South Korea’s Ministry of Knowledge. The offshore oil and gas market may account for 26 percent of that, the ministry said in a Jan. 7 statement.

While demand for rigs has been booming, ship orders have plummeted because of excess fleet capacity and global economic uncertainties. Vessel prices have fallen as much as 27 percent in the past two years, according to Clarkson Plc, the world’s biggest shipbroker.

Keppel won S$10 billion of contracts last year and the company has a net order book of S$12.8 billion with deliveries stretching out to 2019, Choo said.

Full-year profit totaled S$1.49 billion on revenue of S$3 billion, the company said in a statement. Keppel plans to pay a dividend of 27 Singapore cents a share and a dividend in specie of Keppel REIT units equivalent to 27.4 cents, according to the statement.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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