Sembmarine independent shareholders have deciding say in 'critical' SCI deal

Singapore

SEMBCORP Marine (SMM) has emphasised that its independent shareholders will decide whether a proposed rights issue involving parent Sembcorp Industries (SCI) proceeds.

This is because the independent shareholders will be the only ones voting on a whitewash resolution that is inter-conditional with the rights issue resolution. If the whitewash resolution is not approved, the rights issue will not proceed.

SMM was responding to questions from the Securities Investors Association (Singapore) or Sias.

All SCI directors who hold SMM shares will also abstain from voting on the whitewash resolution.

Sias had asked how the proposal's structure gives SMM's "public" shareholders an actual say in the matter, seeing as SCI owns 61 per cent of SMM and has undertaken to vote in favour of the rights issue. The latter requires only a simple majority to be greenlit.

In June, both firms proposed a S$2.1 billion recapitalisation for SMM and a demerger that will result in Temasek Holdings having a direct stake in the marine arm.

Should the transaction fail, SMM said it will re-evaluate other options to obtain the "critical" funding it needs. But it warned that, if alternative sources of funding are not available in time and/or are insufficient, SMM will "likely be in financial stress". It pointed out that the availability, timing and transaction execution risks of such alternative sources are uncertain, compared with the rights issue.

In the event the proposal falls through, SMM's "strenuous efforts to recapitalise and strengthen its balance sheet will be negated", it said.

If approved, however, the rights issue will allow SMM to "chart a new way forward". With a stronger balance sheet, the marine engineering group expects to be able to fund ongoing commitments and compete for new high-value projects.

Of the rights issue's S$2.1 billion in gross proceeds, S$1.5 billion will be used to repay a subordinated loan from SCI. The remaining S$600 million will be used for SMM's working capital and "general corporate purposes", which includes funding research and development efforts and strengthening its core engineering and execution capabilities that will drive future growth initiatives.

In the longer run, SMM plans to diversify into clean energy growth areas, such as offshore wind, and expand into established segments such as the gas value chain.

Both firms will seek shareholders' approval for the transaction at extraordinary general meetings around end-August to early September.

At Wednesday's close, SCI shares fell S$0.02 or 1.1 per cent to S$1.75 while SMM dropped S$0.01 or 2.3 per cent to S$0.425.