Financial troubled Sembcorp Marine, a builder and operator of a repair facilities in Singapore for the offshore, marine and energy industries, is proposing a $1.5 billion recapitalization plan with the aid of its current parent company Sembcorp Industries and Singapore-based investment firm Temasek, which is the largest shareholder in Sembcorp.
Under the proposed terms of the recapitalization, Sembcorp Marine will be demerged from Sembcorp Industries, with each company focused on its individual operations. The first step involved a rights offering from Sembcorp Marine expected to raise the $1.5 billion of which Sembcorp Industries has committed to purchase 70 percent with Temasek agreeing to sub-underwrite the remainder. After the recapitalization, Sembcorp Industries will distribute the shares it holds in Sembcorp Marine to its shareholders creating the two companies.
According to the companies, the plan is designed to permit each company to better focus on their respective industries. Sembcorp Marine has been faced since 2015 with a prolonged and severe downturn in the offshore and marine industry due to changes in the energy business and increasing international competition. With steep declines in its order book, Sembcorp Marine financial performance resulted in pre-tax losses since 2017 further pressuring its liquidity and working capital requirements.
The recent global collapse in oil prices and the economic impact from COVID-19 further stained the company’s already weakened financial position creating the need for the recapitalization. In outlining the plan, the companies noted that with new orders likely to remain depressed for a prolonged period, Sembcorp Marine believes a recovery will be delayed to 2021 and beyond. Sembcorp Marine urgently needs to recapitalize, address liquidity requirements, and strengthen its balance sheet. In 2019, Sembcorp Industries had injected approximately $1 billion in cash in the form of a subordinated loan which will be converted into equity on Sembcorp’s balance sheet as part of the right offering.
“We believe that the Rights Issue will give us much needed financial strength to ride through the prolonged industry downturn and prepare for recovery,” said Wong Weng Sun, president and CEO of Sembcorp Marine. “This recapitalization will improve our cash position, fund ongoing financial commitments, strengthen our balance sheet, and ensure long-term viability.”
Sembcorp Industries, which currently owns approximately 60 percent of Sembcorp Marine, will continue to be focused on its core areas of energy and urban development after the demerger. Temasek will be a direct and significant shareholder of both Sembcorp Industries (nearly 50%) and Sembcorp Marine (stake exceeding 29%).
“We recognize these are difficult times and the companies are operating in an uncertain and volatile world,” said Nagi Hamiyeh, Joint Head, Investment Group, and Head, Portfolio Development of Temasek. “There are challenges to the business environments in which both companies operate. However, we will work actively with the boards and management teams of both companies as they address these current challenges, and with an eye to the future, as they identify pathways for long term growth.”
Both companies will be seeking their respective shareholders’ approval for the transaction at meetings, which are expected to be held by early September 2020.
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