Less than a year after a $2.1 billion rights issue last September, Sembcorp Marine is jolting shareholders again as it is reaching out its hand for another $1.5 billion.

The three for two rights issue, announced on June 24, is priced at 8 cents per share, or a discount of 58% off its last traded price of 19.1 cents on June 23 and 35.7% off its theoretical ex-rights price. The funds to be raised will lower SembMarine’s net gearing from 0.75 times as of Dec 31, 2020, to 0.25 times on a pro forma basis.

Of the $2.1 billion raised last September, some $1.5 billion was used to pay back an intercompany loan to Sembcorp Industries as part of their “demerger” exercise.

Wong Weng Sun, SembMarine’s president and CEO, calls the rights issue “vital” in “fortifying” the company’s financial position. “It will ensure we emerge from this crisis as a strong and innovative player, with an increasing strategic focus on clean, sustainable and renewable energy solutions.”

William Goh, SembMarine’s CFO, says the rights issue “will strengthen the balance sheet, improve the liquidity position, enable the group to fulfil existing project commitments, bid for new projects, augment technological capabilities and accelerate our pivot to the new energy segment”

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The $1.5 billion to be raised will also help SembMarine freshen up as it enters into exclusive but non-binding merger negotiation between itself and Keppel Offshore and Marine (Keppel O&M), Keppel Corp’s former core business.

CFO Goh and SembMarine’s chairman Tan Sri Mohd Hassan Marican both reiterated that the rights issue is separate from the non-binding MOU with Keppel. 

If completed, the combined entity will be listed with SembMarine shareholders holding shares in the combined entity, while Keppel will receive shares in the combined entity and a cash consideration of up to $500 million, or a cash component with the economic equivalent effect. The $500 million will be paid by the combined entity.

The MOU, announced separately on June 24, is confirmation of a widely-expected restructuring exercise investors and analysts have been suggesting for years. Temasek Holdings is the common controlling shareholder of the two entities, which can now possibly join hands and make the best out of the muted prospects of the oil and gas industry.

“The objective of these discussions is to create a stronger combined entity and sustainable value over the long term for Keppel O&M and SembMarine and their respective stakeholders, in response to dramatic changes in the global offshore and marine engineering and energy sectors,” the joint Keppel-SembMarine press release says. 

According to SembMarine, the earlier rights issue completed in September 2020 had strengthened its financial position and helped push off its “strategic pivot” towards the renewable and clean energy segments.

After paying off Sembcorp Industries, the remaining $600 million is slated to be used to fund ongoing operations. “However, the prolonged disruptions from Covid-19 have created near-term challenges” and that further funding is needed to strengthen its balance sheet, address the temporary working capital depletion and replenish liquidity to meet the projected operational funding requirements through to end 2022. 

“Specifically, proceeds from the $1.5 billion rights issue will be used for working capital and other general corporate purposes, including debt servicing,” says SembMarine.

Under the MOU, Keppel O&M’s legacy rigs and associated receivables will be sold to a separate asset co that would be majority-owned by external investors, and omitted from the combined entity.

While both SembMarine and Keppel O&M enjoyed their heydays riding on the demand for crude oil, the combined entity will be focused on “new opportunities” as renewable energy becomes the focus. Citing figures from the International Energy Agency, the worldwide investment in clean energy is expected to more than treble by 2030 to nearly US$5 trillion ($6.7 trillion) per year.

The joint press release notes that both SembMarine and Keppel O&M have made some inroads in the renewable energy market. For one, Keppel O&M has secured multiple orders from leading players including two converter stations for TenneT Offshore, two offshore wind farm substations for Ørsted, as well as one of the world’s largest offshore wind turbine installation vessels for Dominion Energy. 

SembMarine, on the other hand, won contracts for the Siemens’ Dudgeon offshore wind farm project which has been delivered; offshore substation and topsides for the Ørsted’s Hornsea 2 offshore wind farm, and the HVDC offshore converter platform for the RWE Renewables Sofia offshore wind farm. If completed, the potential combination would create a stronger player to capitalise on growing opportunities in the O&M, renewable and clean energy sectors.

“By combining the complementary strengths of both businesses, the combined entity would be able to accelerate the companies’ pivot towards O&M renewables opportunities … be better positioned to compete for larger contracts, whilst pursuing the synergies that can arise from the increased operational scale, broader geographic footprint and enhanced capabilities of a larger entity,” the companies say.

In addition, subject to regulatory review, the combined entity will be the preferred EPC partner for Keppel’s projects where the combined entity has the relevant expertise. After this announcement, Keppel and SembMarine will undertake mutual due diligence and discuss the terms of the potential combination, which is expected to take several months. 

Keppel shares last traded at $5.11, down 5.7% year to date while SembMarine shares last traded at 19.1 cents, up, 27.33% year to date. 

Photo: Bloomberg