Sembmarine defends EGM decision, management performance after Sias queries

THE board of directors of Sembcorp Marine on Saturday (Feb 11) defended the company’s management personnel, among other things, in response to an extensive list of queries from the Securities Investors Association (Singapore), or Sias, regarding the company’s highly-anticipated proposed merger with Keppel Offshore & Marine (KOM). 

Sias had questioned if Sembmarine’s board had “critically reviewed” the performance of its management in the past two to five years. Particularly, Sias wanted to know if the company’s management is able to navigate the competitive landscape of the industry as a standalone entity. 

Sias noted that all but one of Sembmarine’s directors have indicated that they would be leaving the board if the acquisition is successful. Sias had also queried Sembmarine of the composition of the board post-acquisition. 

Sembmarine said it reviews its management performance regularly. Since the start of the industry downturn in 2015 and the more recent Covid-19 pandemic, Sembmarine said, its board has worked more closely with the management to navigate challenges. 

While several key projects were delayed and not profitable, Sembmarine’s board said it recognises that the management “did its utmost to achieve project completions with no project cancellations”. 

The company said the management has successfully secured a pipeline of new projects worth about S$7 billion in 2022. 

Sembmarine also said the company has taken “strategic steps to evolve and transform” for the past 60 years. Sembmarine’s board believes that the proposed combination is the “best and most compelling way forward” for the company to unlock long-term value for its stakeholders. 

The company also set out the rationale for the board reconstitution, saying that the company is now “well-positioned” for the proposed board to steward the enlarged group. 

“The enlarged group will further accelerate the strategic transition into offshore renewables, new energy and cleaner O&M solutions. This will require new perspectives and competencies at the board level and across the organisation,” said Sembmarine. 

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Should shareholders approve the proposed merger, Sembmarine said it would have to weigh the “pros and cons of continuity versus change at the board level”. It would be an “opportune time” for the board to be reconstituted, added Sembmarine.

Sembmarine’s deputy chairman Yap Chee Keong will be a member of the proposed board, while Sembmarine’s chief executive Wong Weng Sun will be a senior adviser. 

Sias had asked Sembmarine about the “safeguards” in place to ensure that all relevant questions during the virtual extraordinary general meeting (EGM) are answered before the vote. 

Sembmarine said the virtual EGM “is in line with the guidelines” set by government agencies at the time the circular was issued. The company added that “several options” were considered, but a key consideration was the “large number” of Sembmarine shareholders. 

Sembmarine’s chairman, who will also chair the EGM, will ensure that “all relevant and substantive questions” are answered before the resolution is put to a vote, said the company. 

Sembmarine said in response to a query from Sias that it has engaged its banks, financiers and their significant shareholders to “ascertain and seek their support” in the event of either outcome of the EGM. 

Sias asked Sembmarine when it will be able to declare a “meaningful dividend” for shareholders.

Sembmarine said in response that it is unable to provide any guidance on future dividend payouts at this point in time, noting that dividends will be a function of the enlarged entity’s profits and distributable reserves, as well as ongoing operating cashflow and investment requirements. 

Sias had also asked Sembmarine about the goodwill that will be created on the back of the proposed combination, and the risk of any impairments in the near future. 

Sembmarine said the actual amount can only be determined after a purchase price allocation exercise is completed. The possible impairment of goodwill in future years will depend on the future performance of the enlarged group, and Sembmarine said it is unable to provide any forecasts on this. 

“As for risks and expected benefits, this can cut both ways in all transactions. If the synergies from the proposed combination are achieved, the expected benefits could potentially outweigh the risks,” said Sembmarine. 

But if certain risks – ones that have been flagged by Sembmarine in its circular – do materialise, this could have a “material and adverse impact on the enlarged group”, Sembmarine warned. 

Sembmarine had also defended the approach of its independent financial adviser (IFA), after Sias asked how robust the IFA’s opinion was given that it had disregarded the net asset value (NAV) approach. 

Sias also noted that the IFA was “seller-appointed”, and used a price to net asset value comparison of comparable companies. 

Sembmarine said the IFA had outlined its methodology in evaluating the transaction – taking into account factors such as the assessment of the consideration for the restructured KOM group, assessment of the issue price for KOM consideration shares, and the dilution impact on existing Sembmarine shareholders. 

Sembmarine’s EGM will be held at 11 am on Feb 16 by virtual means only.