Proposed Combination of Sembcorp Marine Limited and Keppel Offshore & Marine Limited

Notifying Party:

Sembcorp Marine Limited and Keppel Offshore & Marine Limited 

Notifying Date:

29 July 2022 

Summary of transaction:

(i) the names of the merger parties;

(a) Keppel Offshore & Marine Limited (“KOM”); and

(b) Sembcorp Marine Limited (“SCM”),

(collectively, the “Parties”).

(ii) a description of the transaction;

The transaction involves a proposed combination of SCM and KOM (the “Proposed Combination”). The Proposed Combination involves the establishment of a new holding company (the “Combined Entity”) which will combine the businesses of KOM and SCM via separate schemes of arrangement.

(iii) a description of the business activities of the merger parties worldwide and in Singapore;

SCM

SCM offers one-stop engineering solutions for the offshore, marine and energy industries, with an increasing focus on cleaner O&M, renewable and clean energy solutions. SCM focuses on four key capabilities:

1. rigs & floaters;

2. repairs & upgrades;

3. offshore platforms; and

4. specialised shipbuilding.

SCM operates shipyards and facilities such as engineering offices in Brazil, France, Indonesia, Malaysia, Norway, Poland, Singapore, the United Kingdom and the United States. Vessels are primarily constructed in SCM’s shipyard in Singapore, and to some extent, in Brazil.

KOM provides total solutions to the offshore, marine and energy industry through its global network of yards and offices. KOM has know-how across a wide range of capabilities – design & engineering, new builds, conversions & repairs, and support services.

KOM operates shipyards and facilities in Brazil, China, Japan, the Philippines, Singapore, and the United States.

(iv) a description of the overlapping goods or services, including brand names;

The Parties’ shipbuilding activities are primarily targeted at the offshore, marine and energy industries. The Parties also provide ship repair, dry docking, and conversion and upgrades services for vessels generally.

The Parties overlap in the following goods or services with relevance to Singapore:

1. The global supply of commercial vessels. The commercial vessels that the Parties construct include offshore and marine vessels, which are vessels used to explore and identify new oil and gas reserves under the seabed, and to extract and produce oil and gas from those reserves. Energy companies that procure exploration and production vessels also hire or procure a variety of complementary support vessels, including offshore accommodation vessels that allow workers to be based near oil and gas fields. Apart from offshore & marine vessels, the Parties also construct and supply other seagoing vessels including bunkering vessels, barges, and heavy lift vessels.

2. The global supply of ship repair services. Ship repair services refers to the repair, maintenance, upgrade and conversion of marine and offshore vessels including, but not restricted to, periodic maintenance, surveys, dry dockings, damage repairs, refurbishment, upgrade, and conversion work.

Brand names

In Singapore, SCM trades under the name of its Singapore-registered entities or “Sembcorp Marine” and PT SMOE. SCM also used to trade (but less so from 2015) under the names of its shipyards – JSML Shipyard, Jurong Shipyard, PPL Shipyard, PT Karimun, Sembawang Shipyard, SMOE, and SML Shipyard.

In Singapore, KOM trades under the name of its Singapore-registered entities or “Keppel Offshore & Marine Ltd”.

(v) a description of substitute goods or services;

From a demand-side perspective, there are no close product substitutes to commercial vessels, and ship repair and upgrade services from a customer’s point of view. Supply-side substitutability between vessel types is high in the commercial shipbuilding and ship repair markets.

(vi) The Parties’ views on:

a. definition of the relevant market(s);

The Parties are of the view that the relevant markets are

(a) the global supply of commercial shipbuilding (which includes all seagoing vessels or commercial vessels that the Parties construct) (“Commercial Vessels Market”); and

(b) the global supply of ship repair services (“Ship Repair Market”)

b. the way in which competition functions in this market;

Commercial Vessels Market

Purchases are made through infrequent tenders after a long, deliberative process that involves the solicitation of bids from as many shipyards as possible. Accordingly, tendering customers will carry out significant due diligence to identify all manufacturers around the world that are able to fulfil the contract.

Shipyards typically produce vessels on specifications that are defined by customers. Once a specification has been defined, multiple shipyards will typically be invited to participate in a competitive tender process. The main considerations in evaluating bids are typically price, quality, and delivery timing.

Ship Repair Market

Ship repair yards are typically asked by customers to provide quotes based on the nature of repair and upgrade services required by customers. Once work specifications have been defined, multiple shipyards in different regions located in the vicinity of the vessel (either by the actual or expected location along the route) will typically be invited to participate in a competitive tender process. The main considerations in evaluating bids are typically the costs of repairs, final discharge port of the vessel prior to entering the shipyard, shipyard facilities, safety and technical capabilities, location of repair and customer relationships.

c. barriers to entry and countervailing buyer power; and

Barriers to entry

Commercial Vessels Market

In general, shipbuilding activities require substantial resources and investments into capital, land, labour, technology and knowledge. It is, however, possible to enter the shipbuilding market within a short period of time as demonstrated by the growth of shipbuilders in other regions.

Barriers to expansion are limited for a shipyard engaged in construction of other vessels, in view of the many similarities in supply chain of raw materials and equipment, rules, regulations, standards, construction technology, infrastructure, assembly process and market experience. Majority of shipyards have the necessary capabilities and the know-how to construct various types of vessels.

Ship Repair Market

For ship repair and upgrade services generally, know-how, expertise and track record to conduct the repairs are typically required for entry, but these can be acquired through hiring the necessary talent and investing in the infrastructure and facilities such as drydocks, berths, workshops and cranes. Where more space is required to handle repairs for larger vessels, these can be overcome by building a larger repair yard.

Countervailing buyer power

Commercial Vessels Market

Customers of Commercial Vessels are large, sophisticated players who place infrequent high-value orders through tenders, inviting as many shipyards as possible to tender for new projects and each tender can comprise of different competitors. Customers often do not rely on one shipyard for the construction of their vessels.

Ship Repair Market

The Ship Repair Market is similarly characterised by the presence of large and sophisticated customers with considerable purchasing power. Customers do not rely solely on one shipyard for the repair of their vessels, and often have their choice of locations and ship repair yards (depending on trading routes) to carry out both scheduled and unscheduled repair works.

d. the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

Coordinated effects

Commercial Vessels Market

The Parties are of the view that the Proposed Combination would not give rise to any coordinated effects in the supply of Commercial Vessels due to intense competition resulting from a large number of competitors for a small number of contracts, and the lack of price transparency of commercial vessels due to private negotiations.

Ship Repair Market

The Parties are of the view that the Proposed Combination would not give rise to any coordinated effects in the provision of ship repair services. Customers consider trade routes when choosing the shipyard for repair services and invite as many shipyards as possible to tender for repairs (even for unscheduled repairs). It is difficult for shipbuilders to agree tacitly with other competitors on prices as such negotiations are bilateral.

Non-coordinated effects

The Parties are of the view that the Proposed Combination would not give rise to any non-coordinated effects. This is due to the multitude of strong competitors, the fact that the market is characterised by intense tendering, private negotiations on prices and other competitive terms, competition from new entrants, high countervailing buyer power of sophisticated customers and the ease of switching by customers of different suppliers between projects.

For the Ship Repair Market, there are similarly a multitude of other competitors, intense tendering, private negotiations on prices and other competitive terms, high countervailing buyer power of sophisticated customers and the ease of switching by customers between ship repair yards.

Conglomerate and vertical effects

The Parties are of the view that the Proposed Combination would not give rise to any conglomerate or vertical effects as the Parties do not offer products or services which they do not each already offer prior to the Proposed Combination, and customers do not tend to purchase the overlapping products and services of the Parties together. The Proposed Combination would also not give rise to any vertical effects, as the Parties do not supply or procure any products or services from each other in both the Commercial Vessels Market and Ship Repair Market.

Decision:

Following its assessment, CCCS has concluded that the Proposed Acquisition, if carried into effect, will not infringe the section 54 prohibition of the Competition Act 2004. 

Decision Date:

2 November 2022

Read the media release.

Read the Grounds of Decision.