What’s Sembcorp Marine getting out of its US$115.1m PPL Shipyard stake acquisition?

Financial impact will be minimal, say analysts.

Sembcorp Marine recently nabbed the remaining shares in in PPL Shipyard it does not already own. This translates to a 15% stake, which sold for US$115.1m cash and at an implied valuation of 1x P/BV.

According to a report by DBS, the deal is a win-win, though the transaction is immaterial to both Sembcorp Marine and Yangzijiang. This is given the fact that the value represents about 5.6% and 2.3% (adjusted for YZJ’s effective interests in PPLH) of Sembcorp Marine and YZJ’s market capitalisation respectively.

From Sembcorp Marine’s standpoint, management had expressed interest to nab the remaining 15% stake in PPL Shipyard from Baker Tech, and attempted to block Baker Tech’s disposal of PPL Holdings to YZJ and partners six years ago.

Having full control of PPL Shipyard allows Sembcorp Marine improved flexibility in terms of yard management. DBS added that it should simplify the approval process for any future merger and acquisition or consolidation activities involving PPL Shipyard.

For YZJ, it makes perfect sense to divest PPL Shipyard as they decided 2-3 years back to shirk the offshore sector. As such, the key rationale for the PPL Shipyard investment—to taper the learning curve in the offshore scene—no longer tracks. Moreover, the consideration is nearly on par with the acquisition expense in 2010 and carrying value on book, providing a compelling deal given the current state of the sector.