Shareholders must decide on Sembcorp Marine's rights issue this week: Sias

BY Friday, Aug 20, shareholders of Sembcorp Marine (Sembmarine) have to lodge their proxy forms for voting on the company's recently proposed rights issue to raise S$1.5 billion.

Here is a summary of some of the issues surrounding this capital raising exercise, which has not been without its critics.

Among the bones of contention: Sembmarine's latest fundraising is just over a year after it raised S$2.1 billion.

The company said the fundraising in June 2020 was needed to strengthen its liquidity position and balance sheet, and to help it forge its own destiny as "a global leader in innovative engineering solutions for the offshore, marine and energy industries, with an increasing focus on clean energy''.

At the time it did not expect to have to undertake a second fundraising.

But at a recent dialogue session organised by the Securities Investors Association (Singapore) (Sias), Sembmarine said the impact of Covid-19 had created severe and unanticipated manpower shortages. The company decided to complete and deliver on its project obligations rather than cancel or terminate them, but the result was that additional costs had to be incurred.

Although the current rights issue is partly to help Sembmarine shift into the green sector, the money is also needed to "address the temporary working capital depletion and replenish liquidity to meet the projected operational funding requirements through to end-2022''.

In short, Sembmarine is saying the current rights issue is needed to keep it going for the next 16 months or so whilst it continues to transition from a company operating in the offshore oil and gas (O&G) sector into one that will compete in the carbon-neutral, clean energy industry.

For Sembmarine shareholders who have already pumped money into the company last year, is it worth pumping in more now?

There is no guarantee that come end-2022, Sembmarine will not undertake a third rights issue in three years. But if the company is successful in transforming itself from a loss-making offshore and marine (O&M) company into a profitable green energy provider, then shareholders should stand to benefit from superior share price performance.

Sembmarine has argued that it can leverage its 60 years of experience in shipping and O&G to move into green energy provision.

For example, management said, Sembmarine can repurpose its jackup rigs into wind turbine installation vessels. Also, its fixed platform capabilities are now being used for offshore wind converter platforms.

"We are also able to use our gravifloat solutions to harness liquefied hydrogen into the future, and at the same time to create a receiving terminal for hydrogen fuel in liquid form so that this energy can be transported from one place to another through the ocean,'' said Sembmarine's president and chief executive Wong Weng Sun.

The company also highlighted that it already has three ongoing renewable energy projects and that it is currently tendering for more.

On the subject of whether a third rights might be needed, Sembmarine said much would depend on its liquidity needs at the time. But it said that by the end of 2022, when 14 of its existing 16 projects are completed, its working capital should normalise.

Shareholders should note that the rights cannot proceed without their approval. Whether or not shareholders later decide to subscribe to the rights issue is independent of the upcoming vote.

The writer is the founder, president and chief executive of Sias.

READ MORE:

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• Sembmarine 'deliberately priced' rights issue at affordable level