Sembcorp Marine (SembMarine) has announced that intends to take a renounceable underwritten rights issue to raise gross proceeds of some $1.5 billion with an issue price of 8 cents per rights share.

The company will issue up to 18.83 billion new shares in its capital on the basis of three new shares for two existing shares held.

The rights issue is expected to be completed in the third quarter of 2021.

The issue price represents a discount of 58.1% to SembMarine’s last transacted price of 19.1 cents on June 23.

SembMarine had previously completed a $2.1 billion rights issue in September 2020 that had “strengthened the group’s financial position”. The sum raised also allowed the group to pursue its pivot towards the renewable and clean energy segments, as well as reduce the group’s leverage and debt servicing obligations.

See also: Sembcorp Marine and Keppel begin long-awaited merger talk of O&M business

SembMarine’s announcement of its rights issue came minutes after it jointly announced the signing of a non-binding memorandum of understanding (MOU) with Keppel Corporation.

The announcement of the potential merger with Keppel O&M came after SembMarine’s and Keppel Corporation’s requests for a trading halt on the morning of June 24 before market open.

The MOU will see both companies enter into exclusive negotiations to combine Keppel’s offshore and marine (O&M) arm, Keppel O&M with SembMarine.

Under the MOU, Keppel Corporation and the combined entity will enter into a strategic partnership where Keppel will hold 50% of the 50-50 joint venture (JV) established between both parties.

The arrangement means Keppel Corporation will still be able to continue accessing Keppel O&M’s capabilities required for its projects.

If successfully completed, the merger is expected to be a listed entity and accretive to Keppel Corporation’s earnings for the current financial year on a pro forma basis.

Keppel Corporation will also receive shares in the combined entity and a cash consideration of up to $500 million. The group says it intends to distribute all the shares in the combined entity to its shareholders by way of distribution in specie.

In light of the recent changes in the global O&M and engineering and energy sectors, both companies say the merger will potentially create a stronger entity when combined.

The merged entity will also provide sustainable value over long-term for both companies and their respective stakeholders.

The O&M sector has seen a sustained reduction in oil exploration and development activities, causing a “significant reduction in business” in recent years.

The prolonged downturn, which was exacerbated by the Covid-19 pandemic, saw the fall in oil demand and prices in 2020. Globally, there has also been an energy transition away from oil.

As it is, several global peers of Keppel O&M and SembMarine have already explored consolidations to create scale, retain talent and use their asset bases in a more effective manner. Such actions also aim to position these peers for new opportunities arising from the energy transition.

According to the joint statement released by Keppel Corporation and SembMarine, both companies are also pivoting to the renewables sector.

By putting together their resources, the combined entity would be able to accelerate the companies’ pivot towards O&M renewables opportunities.

The combined entity would also be able to compete for larger contracts among other benefits.

According to Keppel O&M and SembMarine, the merger will focus on preserving operational strengths, and will continue to attract and retain local talent as well as bring in international expertise in specialised engineering fields where needed.

On the same day, Keppel Corp has signed a non-binding MOU with Temasek Holdings subsidiary, Kyanite Investment Holdings, to sell Keppel O&M’s legacy completed and uncompleted rigs, as well as associated receivables to a separate asset company which would be majority-owned by external investors.

Keppel Corp will hold a 20% stake or less in the new asset company, while external investors will hold the balance of at least 80%.

The transactions, says Keppel Corporation, are in line with its Vision 2030 plans to be more focused and disciplined as it seeks to provide solutions for sustainable urbanisation.

Keppel O&M’s interests in Floatel International and Dyna-Mac Holdings, as well as its legacy rigs will be excluded from the combination.

Its interests in Floatel International and Dyna-Mac Holdings will remain with Keppel Corporation.

Keppel Corp will receive the consideration for the legacy rigs and associated receivables in the form of credit notes.

The new asset company will be independently managed from the merged entity.

“Over the past few decades, Keppel has been regularly transforming itself to stay competitive and seize new opportunities. As part of Vision 2030, we have announced that we are sharpening our focus, and working towards being one integrated business, providing solutions for sustainable urbanisation, and focused on four business segments: Energy & Environment, Urban Development, Connectivity and Asset Management,” says Loh Chin Hua, CEO of Keppel Corporation.

“The proposed restructuring will allow us to further enhance the alignment and synergy across our business segments, as we focus on realising Vision 2030. Together with the planned divestment of our logistics business, Keppel will be much more streamlined, asset-light and focused in the execution of our mission. We will accelerate the Group’s growth in areas such as smart cities, renewables, environmental solutions, connectivity and asset management, and work towards our target ROE of 15%,” he adds.

Shares in Keppel Corporation and SembMarine last closed at $5.11 and 19.1 cents respectively on June 23 before their trading halt on the morning of June 24.