COLUMN | Three blind mice, see how they run, part two: Global Marine Systems and Keppel [Offshore Accounts]
This week, we are running with the theme of the nursery rhyme Three Blind Mice (not the recent horror film of the same name). It is a repetitious tune, the lyrics of which can be viewed here.
Our first blind mouse facing the chopping off of its metaphorical tail was Bourbon, which has a dozen laid-up ships for sale on a Chinese online auction platform, which we highlighted in the opening article of the series.
Our second mouse is a famous name fallen on hard times, with a proven track record of being strategically blind.
As early as 2021, we highlighted the lamentable decline of the Global Marine Group (GMG), a company with a long and storied history as the pioneer of subsea cable-laying, which has been owned, in various forms, by the British government, an American dot com entrepreneur of dubious ethics, then a series of private equity houses since 2004.
Not surprisingly, control by private equity has predictably drained the Global Marine business of investment, and the company has seen its aged and technically obsolescent fleet sink to irrelevance.
Under a series of weak CEOs and shareholders obsessed with asset stripping and bleeding the business dry, the company has fallen further and further behinds its international rivals.
Rishi was right about one thing
Both data cable laying and electrical cable laying are booming, and the recent “incidents” in the Baltic have served as a warning to Western nation states about the vulnerability of their subsea cable networks.
This was a risk flagged by Rishi Sunak before he became British prime minister, and recent events have only served to highlight this one piece of prescience on his part.
As a result, after a quarter century of stagnation, cable laying vessels (CLV) are back big time.
Western navies are rushing to invest in cable repair and protection vessels. Windfarm operators are scrambling to lay power cables to connect their facilities to national grids and paying customers. Datacentres need more high-speed cable capacity for burgeoning internet use, AI and file storage.
Even oil and gas companies are seeking to electrify their operations to reduce emissions, thus requiring even more subsea cables.
The scale of the investment is huge and runs into billions of dollars. Jan De Nul has a double order of extra-large, sister-vessel CLVs at China's CMHI Haimen shipyard, each with a cable-carrying capacity of 28,000 tonnes. The first, Fleeming Jenkin, will be handed over to the Luxembourg-headquartered operator in 2026. This 215-metre long ship will be able to lay cable in water depths of up to 3,000 metres.
All of the Big Four Low Countries' dredging players have transformed themselves into windfarm and offshore power houses and have now invested heavily in new CLV capacity – being Boskalis, DEME and Van Oord, as well as Jan De Nul.
All three of the major cable manufacturers have also invested in CLVs to provide integrated services to their customers, being Nexans, NKT, and Italy’s Prysmian. Traditional fibre-optic cable companies like Orange and Louis Dreyfus are also investing in newbuild CLVs.
Malaysians, Japanese and Greeks also see the opportunity
The orders are also coming thick and fast from both newcomers and existing players seeking to beef up their presence with bigger CLVs.
October last year saw the OMS Group of Malaysia, which operates six existing CLV and cable repair vessels, order the first in what is hoped to be a series of CLVs at IHC in the Netherlands, as we reported. This vessel will be delivered in 2027 and will have a length of 130 metres, a beam of 22 metres, a cable capacity of 6,500 tonnes, and the ability to bury cables at depths of 3.3 metres.
Then, in December, PaxOcean announced that it would be building a new CLV for Japan’s Penta Ocean Construction at its Batam yard. With a deadweight of 14,000 and classed by Nippon Kaiji Kyokai (NK), the vessel is expected to be completed in February 2028, the yard said.
At the end of January, we reported another big CLV order. Asso.subsea of Greece signed for the construction of its new DP2 CLV, to be named Althea. Purpose-built to work in all types of challenging environments, including shallow waters and intertidal zones, Althea will be built to handle 12,000 tonnes of cable in different configurations.
The ship will be built at the CMHI shipyard, at the Mazhou Island site in Shenzen, with a delivery date is set for the second quarter of 2027.
It is starting to look like 1999 all over again, we admit.
Silence from Global Marine
Unfortunately, whilst its competitors have been investing, Global Marine has been missing in action, as it were. You didn’t see it mentioned as investing in new tonnage, unlike its competitors, because it hasn’t. Instead, the company’s owners have sought to sell, sell, sell rather than invest.
In 2019, Global Marine sold its 49 per cent stake in Huawei Marine Networks, a joint venture in cable-lay in China, to Hengtong Optic-Electric for around US$140 million.
A few months later, HC2 announced the sale of Global Marine to a third private equity house, JF Lehman and Company, for US$250 million. The deal closed in February 2020, just before global markets tanked when the first pandemic lockdowns began. Not great timing.
Today, its situation is even worse. In 2022, Global Marine sold the 2011-built, 130-metre long trenching and subsea vessel Global Symphony to Jan de Nul.
Lehman then flogged the company’s CWind crewboat fleets, first in Taiwan in July 2023, when the International Ocean Group purchased the Global Marine Group’s shares in CWind Taiwan to become sole owner, then in October of the same year when Inspirit Capital acquired its British business and the remaining 12 crewboats.
Global Marine started in a blaze of glory and ended with shrinkage
Global Marine’s current fleet of six cable-lay and repair vessels were built between 1995 and 2000, which would make them obsolete in any other sector of the offshore industry. Shocking to say, the youngest cable-layer in the Global Marine fleet, Normand Clipper, was built in 2001 and it is chartered in from Solstad with options up to 2028.
The rest of the vessels in the Global Marine fleet, which it owns itself, date back to the 1990s. That was an era that opened with Bon Jovi’s Blaze of Glory topping the charts and closed with Cher’s Believe, an era when both America and Russia pledged under the Budapest Memorandum of 1994 to protect Ukrainian sovereignty and territory.
Like I said, a world away from today, and most of our readers are probably too young to remember it, the 1990s sitcom Seinfeld’s Shrinkage skit seems to sum up Global Marine’s sad story these last three decades.
We have highlighted many times the pass the parcel nature of private equity investment, with funds typically focused on an exit in a three- to five-year time frame, selling businesses to each other without disclosing the price, and loading them up with debt.
"Global Marine should get new ships or go home," we said at the time.
Instead, it has got a new owner – one with deep pockets that may be able to turn the business around from being a potential source of scrap to a springboard for growth.
Who’s buying Global?
One of the signs of any sector experiencing a bubble is the arrival of dumb money. Offshore cable laying is a booming sector now, even if Global Marine’s lack of investment and uts ageing fleet mean it has lost its competitive advantage.
In the last offshore boom of the early 2010s, some of the biggest losers were Singaporean banks, especially DBS, which backed a string of bullish national companies including Emas Offshore, Pacific Radiance, Swiber, Teras and Ezion, and Miclyn EOT by lending them hundreds of millions of dollars for aggressive newbuilding campaigns in anchor handlers, PSVs, jackups and construction vessels.
This boom quickly ended in tears when the market collapsed in 2015, and the banks took large losses.
This time around it seems that Singaporean investment funds are taking up the slack now that their burned bank brethren have retreated. First, we saw Cyan Renewables buy offshore emergency response and fishery protection player Sentinel Marine in the UK, then Australia’s MMA Offshore for the eye-watering sum of AU$1.1 billion last year (then worth US$702 million).
So, no surprise that the buyer of Global Marine Group is (drum roll)… Keppel Infrastructure Fund. If one investment fund in Singapore is going big on random offshore assets, then another must follow.
Note that this is not the shipyard formerly known as Keppel, which merged to create Seatrium in 2024 after years of scandals, losses, and fines.
This is the investment fund with the same ultimate parent company that announced in January that it has received American regulatory approval (for what that is worth now…) for its "Bifrost" undersea cable system. This is a fibreoptic data network that it is jointly developing with Edge Cable Holdings USA (being Meta/Facebook) and with Telekomunikasi Indonesia International.
Bifrost spans over 20,000 kilometres from the west coast of the US across the Pacific via Guam, to directly connect to Singapore and Indonesia through the Java Sea and Celebes Sea. As we reported, the Bifrost system is undergoing commissioning and should commence commercial service later in the year.
So, there is a vague connection between Keppel’s digital infrastructure and Global Marine. But this was exactly the premise under which Gary Winnick and Global Crossings bought the company in the late 1990s, which ended very badly for all concerned.
He messed up; will Keppel succeed?
Are you kidding me? Attractive risk-adjusted returns!
I have serious reservations as to whether Keppel Infrastructure Fund is the right owner for Global Marine. The press release for the acquisition used the familiar “hockey stick graph” argument of exponential growth in cablelay, without considering the obvious strategic issues of an ageing fleet which Global Marine Group faces, and the existing fleet order book:
“Given the rising global demand for connectivity and the limited supply of specialised vessels, the market for maintenance and installation services is poised to grow at about 45 per cent compound annual growth rate from 2023 to 2029. As a market leader, GMG is well positioned to maintain its high fleet utilisation of close to 100 per cent, supporting long-term sustainable growth.
“We are excited to complete this investment in GMG," said Ms Christina Tan, CEO of Fund Management and Chief Investment Officer of Keppel. "It is a rare and unique opportunity to acquire a world-leading provider of subsea cable maintenance and installation services.
"This investment builds on Keppel’s digital infrastructure strategy which includes the Bifrost Cable System, and now, GMG. With a substantial proportion of GMG’s business secured by long-term contracts with huge growth potential, especially in Asia, we are poised to deliver attractive risk-adjusted returns to our investors.”
Rare and unique? World leading? Long-term sustainable growth? I’ll have what she's smoking, please.
Ms Tan and her boss Mr Loh Chin Hua and the rest of the Keppel leadership team have a very strong background in real estate, both commercial and residential, across Asia. They know their stuff in real estate investment trusts and datacentres leases.
Unfortunately, the business of cable laying and marine operations are a world away from glass and steel skyscrapers in Keppel Bay with predictable returns and long-term tenancies.
Global Marine’s aged fleet will need at least US$1 billion of new investment simply for the company to continue operating to the end of the decade. It has already exited Asia once before, in 2019. Strong nationalist tendencies mean that neighbouring countries like Vietnam, Malaysia, and Indonesia have strict cabotage rules to keep Singaporean-flag vessels out of their domestic cable lay and cable repair businesses.
The US is also likely to be increasingly protective of its digital infrastructure and is unlikely to want foreign vessels controlling key internet cables in this era of economic nationalism.
A bazillion dollars, mega-risk adjusted returns
We all love a business that is expected to grow a bazillion per cent in five minutes… but Keppel is very late to this CLV party. It is buying a beat-up, run-down business that needs urgent turnaround and massive capital injection.
Even if GMG orders new ships now, the vessels won’t be delivered until 2028, and their many rivals have built up a huge head start.
Don’t be surprised if…
Don’t be surprised if Seatrium (in which Keppel has a large shareholding) receives a big newbuild order for new CLVs from GMG in the next two years. That would be entirely logical.
Don’t be surprised if all six existing GMG vessels are scrapped in the next market downturn. Don’t be surprised if a Singaporean from a government-linked company is parachuted in to rescue GMG.
Do be surprised, however, if there is any material change in the company’s strategic positioning and finances before 2028.
Did you ever see such a thing in your life as Keppel and Global Marine? Let’s see how these stories run!
Keep reading for our third and final blind mouse…
Background reading
If you are curious to read more about the history of the marine cable laying business from its roots underpinning the “Victorian Internet” of telex cables through the dot com bubble to the latest burst of investment, we have that covered here. The story of the world’s first purpose built CLV, CS Hooper, built in Newcastle, England in 1873, is here.
Th gory and horrific trailer to the Three Blind Mice horror film is here (not suitable for work). With its undead zombie theme, however, it could be a metaphor for Global Marine. Will Keppel be the famous surviving “final girl” beloved of the horror genre?