Keppel Corporation – Final resolution on KrisEnergy June 9, 2021 266

  • Keppel will recognise a loss of S$318mn in respect of its exposure to KrisEnergy in its first-half 2021 financial results.
  • Total assessed recoverable amount is S$105.2mn. Recoverable amount and any further loss provisions will be re-assessed at the end of each subsequent financial reporting period.
  • No impact on FY21e interim and final dividend from latest impairment.
  • Maintain BUY and SOTP TP of S$6.12, with a 10% holding-company discount. Our TP translate to about 1.0x FY21e book value, a slight discount to its 5-year average of 1.05x. Catalysts expected from contract wins and a successful divestment of its Rigco.

Following KrisEnergy’s announcement that it has submitted a winding-up petition, Keppel has announced that it will book a loss of S$318mn in respect of its exposure to KrisEnergy in its first-half 2021 financial results. Keppel’s total exposure to KrisEnergy is S$423.2mn.

Positives

+ Approaching final resolution for KrisEnergy. Keppel benefits from a comprehensive first ranking security package over the assets of the KrisEnergy group. In view of KrisEnergy’s filing of a winding-up petition, Keppel is now implementing detailed recovery plans to maximise recoveries.

KrisEnergy said it has not been able to propose an alternative restructuring plan to DBS, the provider of a US$200mn revolving credit facility, and Keppel, which bears the main economic risk of the revolving credit facility. Therefore, the facility will not be extended as stipulated conditions have not been met. DBS has cancelled total commitments under the facility and declared all loans now payable on demand.

Having evaluated the potential financial impact of the carrying values of its KrisEnergy investment as a result of these developments, Keppel will recognise a loss of S$318mn in respect of its exposures to KrisEnergy in its 1H21 financial results. The loss is measured by estimating the recoverable amounts of the various assets of KrisEnergy, less its obligations in connection with the revolving credit facility.

The estimated recoverable amount is S$105.2mn (S$423.2mn – S$318mn), which Keppel has assessed with professional advice. The recoverable amount and any further provision for losses will be re-assessed at the end of each subsequent financial reporting period.

+ No impact on interim and final dividend. When declaring interim and final dividends for the current financial year, Keppel will take into account, among other things, available profits and cash flows after ring fencing its impairment loss on this non-core investment.

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About the author

Profile photo of Terence Chua

Terence Chua
Senior Research Analyst
Phillip Securities Research

Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.

He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.

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