Sembmarine a candidate for STI inclusion as market cap rises post merger

MAINBOARD-LISTED Sembcorp Marine, which is seeking to be renamed Seatrium, is now among the largest stocks listed on the Singapore Exchange (SGX).

Its increased market cap of S$8.2 billion makes it the largest counter on the Straits Times Index (STI) reserve list, which means it has a chance of being added to the benchmark index – depending on how it and other index counters trade in the coming months.

In February, Sembmarine acquired Keppel Offshore & Marine from Keppel Corp. The deal was settled through the issue of new shares that raised the total issued share capital of Sembmarine to 68.2 billion shares from 31.4 billion shares.

The deal was completed after the deadline for STI inclusion during the March index review, but Sembmarine will have another chance in September.

Index inclusion

The STI index is fully reviewed semi-annually, in March and September. The June and December reviews are meant for inclusions of new listings that did not qualify as fast entrants to the index at the time of their listing.

“The STI semi-annual constituent reviews are based on data from the close of business on the Monday four weeks prior to the review effective date,” said Geoff Howie, market strategist at SGX.

Sembmarine traded at S$0.135 in mid-February, just before shareholders voted on the acquisition of Keppel O&M. Since the closing of the combination on Feb 28, its share price has fallen – to $0.120 as at Apr 6.

But with the larger number of shares in issuance, Sembmarine’s market capitalisation has grown to around S$8.19 billion.

This ranks it above the 20th-largest STI counter, Emperador, which has a S$7.95 billion market cap.

Companies are inserted into the STI during the quarterly review if they rank 20th or higher among eligible securities by full market capitalisation. Those ranked 41st or below among all eligible securities are taken off the index.

Apart from fulfilling the market capitalisation requirements, a candidate stock would also need to meet other eligibility criteria for liquidity and free float.

Janaghan Jeyakumar of Quiddity Advisors, who publishes on research network Smartkarma, said in a note on Mar 27 that Sembmarine “could finally be added to the STI in September 2023”.

If the counter were to be added, he estimated that STI trackers would need to buy around 427 million shares – which translates to a flow of US$33.6 million.

If Sembmarine were to be included on the STI, the smallest index counter at the time would face deletion from the index.

Smaller caps

As at Apr 6, Keppel DC Reit ranked the smallest among the 30 STI constituents with a market capitalisation of S$3.6 billion.

Keppel DC Reit was the worst STI performer in 2022, falling some 28.3 per cent. But it has rebounded since, and is up 17.5 per cent year to date.

Analyst Brian Freitas of Periscope Analytics, who publishes on Smartkarma, told The Business Times last month that Keppel DC Reit would need to fall by around 22 per cent – all else being equal – to drop below rank 40 among eligible securities.

Meanwhile, Sats was the second-smallest STI constituent as at Apr 6. The counter was also the second-worst STI performer in 2022, with a 27 per cent share price decline.

Sats plunged last year after it said in September that it would acquire Paris-based cargo handler Worldwide Flight Services in a deal to be partly funded by a rights issue.

Its market capitalisation – which was as much as S$5.2 billion in April 2022 – fell to a low of S$2.7 billion on Mar 14.

SGX’s Howie noted that Sats had a market cap of S$3.1 billion as at Feb 20, and was the 38th largest stock by market capitalisation within the FTSE ST All-Share Index.

“Had the stock ranked 41st by market cap (or lower) on Feb 20, it would have been omitted from the STI, and – assuming the stock met the then-liquidity screening – Olam Group would have been added,” Howie added.

Investor sentiment towards Sats, however, appears to be improving. The counter has risen 8.2 per cent since the rights shares began trading on Mar 29, and its market capitalisation stood at S$4.1 billion as at Apr 6.

Apart from Sembmarine, the other stocks currently on the STI reserve list are CapitaLand Ascott Trust, Frasers Centrepoint Trust, Olam and Suntec Real Estate Investment Trust.

Last year, Philippine liquor giant Emperador joined the STI during the September quarterly review after its market capitalisation rose to the 20th spot among eligible counters. It booted out bottom-ranked ComfortDelGro Corp in the process.