Sembmarine shareholders seek answers from management on rights issue, outlook

Singapore

SHAREHOLDERS of Sembcorp Marine (Sembmarine) showed concern about the pricing of the rig builder's proposed rights issue, and wanted more details about how management plans to turn the company around and make it worthwhile for shareholders to support the issue.

In a virtual dialogue session organised by the Securities Investors Association (Singapore) (Sias), shareholders asked the company to explain how it would ensure that those who bought in at "higher prices" would not be shortchanged. They also asked executives to justify the move to price the rights at "a low value" of eight Singapore cents.

Sembmarine in June announced a 3-for-2 rights issue to raise S$1.5 billion. The rights price is a 35.7 per cent discount to the theoretical ex-rights price and a 58.1 per cent discount to the stock's close at 19.1 cents prior to the announcement.

Shares of Sembmarine traded as high as S$3.8571 in 2011, adjusted for prior corporate actions, according to Bloomberg data. Over a 10-year period to Aug 6, the counter has lost 96.2 per cent of its value. Since the announcement of the rights issue, it is down 37.7 per cent.

Shareholders also expressed concerns about the likelihood of a mandatory general offer (MGO) being triggered should Temasek's stake increase by one per cent following the rights issue.

Temasek currently owns a stake of 42.6 per cent and has said it will subscribe for both its pro-rata entitlement as well as excess rights, to take up to 67 per cent of the rights issue. DBS will underwrite the remaining 33 per cent.

In an interview with The Business Times, Sembmarine said the low price would allow shareholders to average down their investment cost. But one shareholder said: "We don't have deep pockets like Temasek to average down our average price to eight cents to break even."

In the event an MGO is triggered, Temasek will be obliged to offer eight cents per share.

Last year, Sembmarine had raised S$2.1 billion via a five-for-one rights issue priced at 20 cents per share. The issue was undersubscribed, with valid acceptances and excess applications received for 9.4 billion rights shares - 90.2 per cent of the nearly 10.5 billion rights shares available. The 1.03 billion unsubscribed rights shares were mopped up by Temasek.

Some shareholders were concerned that they are now being "marginalised".

In response, Sembmarine's chief executive Wong Weng Sun and finance director William Goh reiterated that the rights issue was critical for the company to overcome the challenges of the Covid-19 pandemic.

The company is facing supply chain disruptions and a lack of skilled manpower, which has impacted yard operations and its ability to complete projects.

On the company's share price plunge over the years, Mr Goh said the company does not comment on share price movements but will focus on making sure that its strategy is "well executed" and that the company has the liquidity it needs to "ride through the crisis".

"The outcome in terms of share price will follow accordingly," he added.

Shareholders were also concerned about Sembmarine's direction going forward, especially on the question of when the company would return to profitability and resume dividend payouts.

For the first half of FY2021, Sembmarine reported a net loss of S$647.2 million. Much of the loss was attributable to S$472 million worth of provisions.

Although the company sounded a more optimistic note for H2, shareholders called on executives to provide specifics on when they expect the company to "stop the bleed and turn around". Such specifics, they said, are critical for shareholders to make a decision on whether they should subscribe to the rights issue.

Mr Goh said it would be "premature" to predict what would happen beyond this year, but the company hopes a turnaround will happen "sooner rather than later".

Loh Uantchern, vice-president of Sias, asked how Sembmarine would compete in the renewables space as it will be the "new kid on the block" in terms of clean and green energy projects.

Mr Wong said Sembmarine is currently pursuing more than 10 green projects in renewable energy and gas solutions. He also highlighted the non-binding memorandum of understanding that the company inked with Keppel Corp on June 24, which has put a merger between Sembmarine and Keppel Offshore & Marine on the table.

Shareholders, however, were concerned about whether the merger would put downward pressure on Sembmarine's share price or require another rights issue. Keppel has said it expects to receive shares and a cash consideration of up to S$500 million from the combined entity. Sembmarine shareholders wanted to know how their company intended to fund this, and the timeline of the transaction.

Mr Wong said the combination of the offshore and marine segments of both companies would create a "better player in Singapore to capitalise on opportunities arising from new energy". He noted that a number of oil majors around the world have "stepped up and talked about" the need for a change in strategy over the past six months as the world shifts towards cleaner and greener forms of energy. But things are still at a very preliminary stage, he warned.

"When the transition takes place globally, it will be at a fast speed. That's why we are looking at this potential combination to see the benefits that will enable us to create the scale to deliver projects globally."

An extraordinary general meeting to vote on Sembmarine's rights issue is scheduled for Aug 23 at 2pm. Proxy forms for the vote must be received by 2pm on Aug 20.