SOUTH Korea's giant merger between the world's two largest shipbuilders could shake up Singapore-listed yard and offshore players in more ways than one, aside from the oft-speculated but yet-to-materialise consolidation here.
For one, the leading offshore firms and shipbuilders on the Singapore Exchange could land more jobs as South Korean stalwarts Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding & Marine Engineering (DSME) iron out the creases that will likely arise over the integration process.
That's good news for the three largest listed operators - Keppel Corp, Yangzijiang Shipbuilding and Sembcorp Marine (SMM) - which collectively have a market value of S$20 billion.
"We think the integration between HHI and DSME could soak up resources in the next one to two years. This could bode well for SMM and Keppel Offshore & Marine (Keppel O&M) as well as Yangzijiang, allowing them to gain market share in the O&M and shipbuilding space," said CGS-CIMB analyst Lim Siew Khee.
Ms Lim reckons that SMM could benefit soonest given its "hunger" for establishing a track record in the newbuild floating production storage and offloading (FPSO) arena.
One big FPSO job that SMM and Daewoo are fighting tooth and nail to snag is the Rosebank project - one of the largest undeveloped fields off UK - from Norway's Equinor that is estimated to be worth US$1.4 billion-US$1.5 billion.
Analysts do not expect a long wait before the project's victor is known following the completion of Equinor's acquisition of Chevron's stake in Rosebank last month.
Mega yards in South Korea have been compelled to consolidate on the back of brutal competition from rivals in China, Japan, as well as Singapore.
The latest merger in South Korea follows three years after calls were made for the big three shipbuilders there, including Samsung Heavy Industries, to merge to guard the country's global status in shipbuilding.
Pressure in other major markets, including China, for players to merge and fend off breakneck competition has also fuelled more unions.
Last year, Beijing approved the high-profile merger of its two largest SOE (state-owned enterprises) yards - China Shipbuilding Industry Corp (CSIC) and China State Shipbuilding Corp (CSSC).
Japanese shipbuilders have also long been forced to do the same or risk losing more market share.
One notable transaction was the merger of the shipbuilding divisions of IHI Marine United and Universal Shipbuilding to create Japan Marine United in 2013; there have been a few more in that space since.
"This consolidation wave has been ongoing. For the (South) Korean yards, they have been hit especially hard after the fall in oil prices which drastically reduced the demand for drillships, a product they have been focusing on," said OCBC Investment Research senior investment analyst Low Pei Han.
"At the same time, they face fierce competition in the LNG (liquefied natural gas) carrier space from the Chinese yards."
Combined, HHI-DSME will create a powerhouse with a shipbuilding order backlog of nearly US$50 billion and over 20 per cent of global market share.
That backdrop has now once again prompted sector analysts to hypothesise if Singapore's yard operators may find it harder to resist the consolidation wave and if so, what form will it take.
This more so in the case of rigbuilders SMM and Keppel O&M and less so for Yangzijiang. This is because much of the consolidation in China involves SOEs, while Yangzijiang is a privately-owned shipbuilder in China.
The immediate merits of a merger among Singapore's rigbuilding giants have kept the consolidation rumour alive for years: since 2001 when both Keppel and Sembcorp said they were in talks for a possible rationalisation but very quickly ditched the idea as they couldn't agree on terms.
The analyst fraternity has stayed with that idea, though.
"A merger of Keppel O&M and SMM could bring capacity and revenue closer to Korean peers," said a recent report by DBS Group Research. Consolidation in the sector will also cut excess capacity, build bigger players to ward off rivals and allow for better pricing power.
OCBC's Ms Lim said: "The consolidation could strengthen Singapore in the large-scale FLNG (floating liquefied natural gas - Keppel) and FPSO (SMM) newbuild segment as well as create an O&M design and engineering powerhouse, competing head-on with the Koreans.
"A hypothetical and ideal structure is one mega yard (SMM+Keppel O&M), one renewables/utility group (Sembcorp Industries) and one urbanisation /infrastructure group (Keppel)."
Another factor fuelling this talk is the plumped-up kitty of Temasek Holdings from the S$6 billion half-cash-half-shares sale of Ascendas-Singbridge to CapitaLand, a firm it majority owns.
Both Keppel and Sembcorp are Temasek portfolio companies and with that, talk of a potential privatisation of SMM as a prelude to a merger with Keppel O&M is also making its rounds again.
A merger is one way to go if the rig building space does not pick up in the next three years, said Ms Lim.
"The question is the final structure of who holds the majority stake in the yards." Her feeling is that it could involve setting up a joint venture for the "enlarged yard" which could be majority owned by Temasek.
Oil prices may also be fuelling the consolidation talk. Brent crude is currently trading at about US$62 currently: for the year so far it's up nearly 17 per cent, led by a combination of factors including Opec-led supply cuts and US sanctions on Venezuelan oil.
This may partly explain the better showing among Singapore-listed offshore and marine stocks including shipyard operators which are deemed a proxy to crude prices.
So far for the year, Keppel is up 1.7 per cent, SMM has gained 2.6 per cent while Yangzijiang has jumped nearly 13 per cent.
But most analysts expect a choppy showing this year for the commodity - they don't rule out further dips as well - on the back of the US-China trade spat and lower demand growth among others.