Is a mega-merger afoot for Keppel and Sembcorp Marine?

Consolidation isn't such a far-fetched idea, analysts say.

Keppel and Sembcorp are bitter rivals in the offshore and marine space, but analysts note that the two giants might well be forced to merge in order to weather escalating headwinds in the sector.

A report by DBS said that consolidation is possible for both companies, as restructuring will allow the two rigbuilders to streamline their cost structure and improve their competitiveness on the international front.

DBS noted that in the previous downcycle, Singapore shipyards went through a major consolidation during the late 1990s, where various mergers resulted in the formation of the two government-owned shipyard groups.

This time, the shipbuilders are facing an even greater challenge, with contract wins sinking to record lows and manpower woes adding insult to injury.

"This may force the yards to look for ways to restructure. We do not rule out restructuring, mergers and acquisitions possibilities, as any cost rationalisation exercises will boost competitiveness of Singapore yards amid rising competition from Korea and China, and the added burden of operating shipyards in Brazil," said the report.

“A potential merger of KepSMM will create a global champion with a powerful combination - Keppel’s market leadership, branding, and greater overseas experience plus SMM’s world class facilities in Singapore and Brazil, which complement Keppel’s older facilities. KepSMM will account for almost one-third of the global market share for drilling rigs by orderbook,” DBS noted.