Sembcorp Industries and Sembcorp Marine had proposed a S$2.1 billion recapitalisation and demerger. We all know that Sembcorp Marine has been hit badly by the COVID-19 pandemic and recent collapse in oil prices. The demerger will allow Sembcorp Marine to better address its urgent need to recapitalise, meet liquidity requirements, and strengthen its balance sheet to ride through the prolonged downturn in the offshore and marine industry.
What is the impact to shareholders? Let us take a look below.
Recapitalisation of Sembcorp Marine
As part of the recapitalisation for Sembcorp Marine, the company will issue S$2.1 billion renounceable rights to strengthen its cash position and balance sheet.
5 rights shares will be issued for every 1 Sembcorp Marine share held at an issue price of S$0.20 per share. The rights price represents a 31.0% discount to the TERP (“Theoretical ex rights price”) based on 5-day VWAP (“Volume weighted average price”) of S$0.74.
Sembcorp Industries has undertaken to subscribe for up to S$1.5 billion of rights shares by setting off the S$1.5 billion outstanding under its Subordinated Loan extended to Sembcorp Marine. Temasek has agreed to sub-underwrite the remaining S$0.6 billion.
Demerger of Sembcorp Industries and Sembcorp Marine
The demerger will be via a distribution in specie of Sembcorp Industries’ stake in the recapitalised Sembcorp Marine to Sembcorp Industries shareholders as dividends. Thus, Sembcorp Industries shareholders will receive between 427 and 491 Sembcorp Marine shares for every 100 Sembcorp Industries shares owned, with no cash outlay required.
Pro Forma Financial Effects for Semcorp Industries
As illustrated below, earnings per share of Sembcorp Industries will improve by 22% after the demerger. It will also remove constraints on Sembcorp Industries’ balance sheet which consolidates Sembcorp Marine’s debt. As you can see below post transaction, debt will decrease by S$2.9 billion.
The resolution will need to be approve at Sembcorp Industries and Sembcorp Marine’s EGM. The EGM is expected to be held in August or September. Below are some important dates for shareholder of Sembcorp Industries.