Net proceeds from the issue will be used for general corporate and working capital purposes

 

MAINBOARD-LISTED Keppel : BN4 -0.29% on Friday (Apr 26) said it will be offering 70 million euros (S$102.2 million) in floating-rate notes due 2031.

 

The notes will bear interest at a floating rate based on the 6-month Euro Interbank offered rate plus an agreed spread, payable semi-annually in arrear. It will have a tenor of seven years.

 

The notes are expected to be issued on or around May 8, as part of Keppel&rsquo s US$5 billion multi-currency medium term note programme.

 

Net proceeds from the issue will be used by the asset manager for general corporate and working capital purposes, said Keppel.

 

Mizuho Securities Asia has been appointed as the dealer.

 

Keppel on Thursday reported a 6.3 per cent fall in revenue to S$1.5 billion for the first quarter of 2024, compared to S$1.6 billion in the previous corresponding period.

Q1 net profit up with exclusion of legacy O& M assets

 

KEPPEL reported on Thursday (Apr 25) a 6.3 per cent fall in revenue to S$1.5 billion for the quarter ended Mar 31, compared to S$1.6 billion in the previous corresponding period.

 

The global asset manager and operator attributed the &ldquo comparable&rdquo year-on-year revenue to increases in the contributions from infrastructure and connectivity offsetting lower revenue from the real estate segment. 

 

Net profit for the quarter was down on the year, said the group without disclosing its net profit figure.

 

Speaking to reporters and analysts at a briefing on Thursday to discuss the company&rsquo s business update, Keppel&rsquo s chief executive Loh Chin Hua said the group has &ldquo started the year on a good footing&rdquo with &ldquo considerable progress&rdquo on its transformation goals. 

 

Loh said that as Keppel continues to pursue opportunities in areas such as renewables, clean energy and decarbonisation solutions, the company is also expanding its pipeline of long-term contracts that offer stable income and earnings visibility.

 

Keppel still suffered a blow from legacy issues &ndash primarily its offshore and marine (O& M) assets that the group hived off to Seatrium, a company that was a result of the combination of Keppel O& M and Sembcorp Marine. 

 

Excluding the effects of its legacy offshore and marine (O& M) assets, the quarter&rsquo s net profit was up on the year, driven by stronger performance in the infrastructure and connectivity segments.

 

These legacy O& M assets&rsquo effects comprise the profit and loss effects from Seatrium shares, financing costs relating to the vendor notes, as well as contributions from stakes in Floatel and Dyna-Mac.

 

However, if the effects of these legacy O& M assets were accounted for, Keppel&rsquo s earnings would have dipped on a year-on-year basis, Keppel said. 

 

Loh said Keppel has thus far sold 60 per cent of Seatrium shares in its legacy account, which is line with the agreement inked during the combination of the two companies. The average price of these shares that were sold came in at S$0.13, he noted. 

 

Keppel is still holding on to about 1.37 billion shares of Seatrium. The loss in Q1 that can be attributed to these shares is about S$54 billion, against a gain of S$14 million in the corresponding quarter last year. 

 

If Keppel had not sold 60 per cent of its shares, the loss would have been &ldquo even greater&rdquo , Loh said. The group will now account for these as &ldquo legacy assets&rdquo that are separate from its continuing business. 

 

Loh said Keppel&rsquo s asset monetisation has surpassed S$5.5 billion, and the group remains focused on achieving its interim target of S$10 billion to S$12 billion by end-2026.  

 

Since the start of 2024, Keppel has reported the monetisation of about S$170 million in assets, mainly from the proposed divestment of a residential project in Wuxi.

 

In the year to date, the group has raised about S$436 million in equity, and completed about S$1.1 billion in acquisitions and divestments. 

 

&ldquo We will continue to drive organic growth as we work with laser focus towards our 200 billion funds under management (FUM) target by end-2030,&rdquo Loh said. 

 

Keppel currently has a portfolio of 19 active private funds, and the company plans to launch another three new funds for data centre, education assets and private credit later this year.

 

Loh said that Keppel has identified a deal flow pipeline of over S$14 billion across its private funds and listed vehicles. The group will continue to &ldquo actively pursue and actualise&rdquo these deals, which are mostly in the infrastructure and connectivity spaces, he added. 

 

One potential point of concern for the group, as well as its investors, might be its debt levels. 

 

Keppel&rsquo s net gearing ratio stood at 0.9 as at Mar 31, unchanged from the end of 2023 but up from 0.83 times as at end-March 2023. 

 

As at end-March 2024, about 64 per cent of Keppel&rsquo s borrowings were on fixed rates, with an average cost of funds of 3.8 per cent and a weighted tenor of about three years.

 

In response to a question on how much more the company   would be willing to push its balance sheet in terms of acquisitions given the relatively high gearing levels currently, Loh said the company is &ldquo keeping a close watch&rdquo on its gearing. 

 

However, he noted that from H1 this year, Keppel will begin reporting figures on net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda), reflecting its continuing business. 

 

&ldquo I think that&rsquo s probably a more appropriate look at Keppel going forward, rather than just focusing on the net gearing,&rdquo he said. 

 

Loh said that Keppel has been &ldquo steadily divesting&rdquo its land bank in China since 2017. The group has divested about S$3 billion of land bank over this period and earned about S$1 billion in profit. 

 

Keppel has also clawed back about $5 billion worth of renminbi, because the company is no longer actively buying land in China.

 

&ldquo It&rsquo s not because we had a (certain) view on the market, it&rsquo s just the change in our business model to (one of) more recurring income,&rdquo Loh said. &ldquo So all this has helped us to de-risk exposure to China considerably.&rdquo

 

Most of the assets Keppel has in China now are land banks that are at historical cost. Loh said there is thus &ldquo a bit of headroom&rdquo between the market value of the land currently against the historical cost. 

 

Loh said China will still be a good market for Keppel in the medium to long term, but the country&rsquo s needs currently are different compared to 30 years ago when Keppel first entered the market. 

 

Keppel has updated its China playbook to focus on the things that the country requires today. These include broad themes of energy transition, clean environment and connectivity, as well as aspects like rental housing for the real estate sector. 

 

&ldquo We have also mapped that against what Keppel&rsquo s capabilities are, and we&rsquo ve come up with a playbook that we believe is more appropriate and more fit for purpose in China today,&rdquo Loh added.