Share Dilution

Sias questions Sembcorp Marine’s $ 1.5 billion rights issue plan

SINGAPORE (THE BUSINESS TIMES) – The Securities Investors Association (Singapore), or Sias, says Sembcorp Marine’s latest rights issue raises “great concern” among minority shareholders of the company and has raised questions about it .

In a press release issued Thursday, July 15, Sias said the proposed rights issue surprised Sembmarine shareholders as the group’s chief executive, Mr. Wong Weng Sun, expressed his optimism in February in his presentation on the second semester results. of fiscal year 2020.

He said at the time that the $ 2.1 billion rights issue in September 2020 strengthened the company’s liquidity position and balance sheet.

On June 24 of this year, Sembmarine announced that it is planning an additional fully committed and waivable capital increase of up to 18.83 billion new shares on the basis of three new shares for every two existing shares held, to eight hundred per share.

Noting that other offshore and maritime (O&M) players have not addressed this rights issue, Sias questioned the necessity and criticality of this rights issue.

Sias also questioned the group’s basis for its rights issue price of eight cents per share and asked for the full proceeds of the rights and the use of the $ 1.5 billion raised.

Sias noted that the rights issue will represent a significant discount and dilution for minority shareholders, at 35.7% compared to the theoretical ex-rights price and a greater discount of 58.1% at the close of the window at 19.1 cents on June 23.

In addition, Sias quoted the group’s management as saying that the $ 1.5 billion demand was “based on generally conservative assumptions” and asked if and under what circumstances further fundraising exercises would be held. after 2022. Sias also asked for the group’s hypothesis for oil prices until the end of 2022.

Turning to the group’s strategy and operations, the association said that the rights issuance could enable Sembmarine to fulfill its existing commitments and win new projects, increase technological capabilities, maintain competitive advantage. of the group and accelerate its shift towards high-growth renewable and clean energies. segments.

Nonetheless, Sias asked if it was correct to suggest that strengthening Sembmarine’s finances through rights issuance is of the utmost importance and urgent at this point. The association further asked when the group would discount the size of its order book to $ 1.89 billion in cash flow.

The association then questioned the need for the recently announced rights issue since Sembmarine had previously disclosed in its financial statements for the fiscal year ended March 31 of this year that $ 0.2 billion of the $ 0.6 billion of the net proceeds of the previous rights issue of $ 2.1 billion had already been used for working capital.

“We can therefore think that the Group’s liquidity position and balance sheet would have strengthened after the capital increase in 2020. In addition, we can expect an improvement in performance thanks to the improvement in economic fundamentals and success of the cost reduction measures undertaken by Sembmarine, ”said Sias.

Therefore, Sias requested an update on the financial position and operating conditions of Sembmarine. The association also sought to understand the risks and potential risks that the group could face and which could have been at the origin of the proposed rights issue.

With Sembmarine’s net debt-to-equity ratio of 0.74 times, Sias questioned whether Sembmarine had sought to raise funds through other means, as he had for the $ 500 million the group had done. had previously raised through financial facilities linked to sustainable development.

Regarding the protection of minority shareholders, Sias cited the lukewarm response to the previous $ 2.1 billion rights issue, noting that only 18 percent of the total rights issue had been taken over by shareholders. minority.

The association then asked if the group had assessed why their response was such, and if something would be done differently with the last proposed rights question. In addition, the association asked if the company would take measures to protect the rights of minority shareholders.

While Sias understood that Sembmarine clarified that the net proceeds from the rights issue will not be used to fund the potential combination of Keppel O&M and Sembmarine, he further questioned whether there would be any consequences if the latest rights issue was not approved by shareholders, and whether that had an impact on the potential merger of the two companies.

Sembmarine shares were trading at 11.9 cents at 3:35 pm.

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