SINGAPORE (June 8): Sembcorp Marine is launching a $2.1 billion renounceable rights issue in a bid to beef up its balance sheet. This will be followed by a demerger between itself and Sembcorp Industries via a distribution in specie of the 61% stake held by the parent company.
SCM’s 5-for-1 rights issue is priced at 20 cents per share. SCI, the parent, will be using its existing loan of $1.5 billion to its SCM to subscribe for the rights. The remaining $0.6 billion which SCM wants to raise will be sub-underwritten by Temasek Holdings, which holds a direct stake in SCI and an indirect stake in SCM via SCI.
“We believe that the rights Issue will give us much needed financial strength to ride through the prolonged industry downturn and prepare for recovery,” said Wong Weng Sun, president & CEO of SCM.
“This recapitalisation will improve our cash position, fund ongoing financial commitments, strengthen our balance sheet and ensure long-term viability,” he added.
Post rights issue, SCM’s net gearing as at Dec 31 2019 will be reduced from 1.82x to 0.45x on a pro-forma basis, and its cash position will be improved by approximately $0.6 billion
Next, SCI will then redistribute its stake in SCM to its own shareholders as part of a demerger exercise. For each 100 SCI shares held, they will receive between 427 and 491 SCM shares.
With the distribution, SCI can then focus wholly on its energy and urban business, no longer encumbered by the potential drag from the offshore and marine slump that has held SCM in the red for years.
On a pro forma basis, SCI’s FY2019 ROE will increase from 3.5% to 7.9% and its ROA increase from 3.5% to 5.6%.
Upon completion of the proposed transaction, Temasek will be a direct and significant shareholder of both SCI, of some 49.3% and SCM, of more than 29%.
The deals are subject to shareholders’ approval at EGMs to be called.
Both companies have not been doing well lately. On May 29, SCI was one of the four constituent stocks dropped from the MSCI Singapore index, which triggered a round of selling as fund managers rebalance their portfolios.
SCI share’s price is down 33.8% year to date. It last traded at $1.53, compared to $2.31 at the start of the year. SCM down 37.5% year to date, last traded at 85 cents. Five years ago, Sembcorp was near $4 and SCM was near $3.
For the full year 2019, SCI’s earnings dropped by 29% y-o-y to $247 million, on revenue of $9.6 billion, down 18% y-o-y. The company’s bottomline was weighed down by exceptional items of some $165 million, mainly from impairment made on its energy business.
Separately, SCM announced yet another full year in the red, amid the prolonged slump in the energy industry. For FY2019, it made losses of $137 million, worse than the $85 million of losses incurred in the preceding year. Revenue in the same period was down 41% y-o-y to $2.9 billion.
On top of industry challenges, there is the wide-spread corruption and money-laundering saga in Brazil. On June 4, SCM said that Brazilian courts have accepted the complaint filed by prosecutors against one Martin Cheah Kok Hoon, who used to run SCM’s subsidiary in brazil.
On March 16, SCI announced that Wong Kim Yin will take over from Neil McGregor as its group president and CEO, with effect from July 1.
Wong will be joining SCI from Singapore Power, where he was the group CEO. He was previously senior managing director, investments, at Temasek International, where he was in charge of investments in sectors ranging from energy, transportation and industrial clusters.
McGregor will retire on June 30 but will stay on as an advisor to the company till end of the year.
